3/18/2014 3:15 PM ET|
10 ways to boost your retirement savings
Here are some strategies for rounding out your nest egg.
Maybe you know you should be saving more for retirement, but you aren’t quite sure how. Or perhaps you’ve been steadily saving for years but as retirement gets closer, you want to bulk up that nest egg. Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania, shares 10 ideas that can help boost your savings.
Build a bigger nest egg
Retirement isn’t what it used to be, Mitchell says, largely because our standards for what life should be like at age 70 and 80 have changed drastically over the last century. That means the old standard advice, that people should plan to replace about three-quarters of their preretirement income, is no longer sufficient. “A 100 percent replacement rate is a safer place to start,” she says.
Baby boomers often have big plans for retirement, from travel to new hobbies, and those plans usually require money, Mitchell says. “They’re not going to be sitting on the front porch on a rocking chair. They’re going to do volunteer work, travel and do part-time work. Health care costs are likely to be a lot higher in the future as well. So it’s not obvious our expenses will be easily cut, and taxes will likely go up to help bail out the deficit we’re confronting.”
Retire at age 65 or later
The concept of retiring at age 62 is not realistic for many Americans. “A significant portion of the baby boom generation – more than half – is not adequately prepared for retirement, especially if they retire young. … If you delay retirement, benefits will be higher, and you’ve deferred eating into that nest egg for more years,” Mitchell says. “My husband just quit work at 63, and I said he couldn’t claim Social Security until he’s 70.”
Don’t try to follow your parents’ example
That’s because mid-career workers today are unlikely to see a repeat of what their parents experienced: housing prices that grew quickly and substantially. A stock market that blossomed for much of their working lives. And in some cases, generous pensions.
“If we were to extrapolate from our parents’ generation, we might think, ‘We really don’t have to save that much because it’s happening automatically.’ [But] we now realize that putting all our money in one house is a really silly thing to do. It’s not diversified, and values can plummet. We saw what happened to the stock market – on top of Social Security and Medicare facing extraordinary financial challenges,” Mitchell says.
That’s why you can’t look to past generations for guidance, and one reason why boomers feel so much angst about their retirement prospects. “They really wish that the past would be replicated in the future, and it probably won’t be,” she adds.
Save at least a quarter of your income
Mitchell encourages her two 20-something daughters to put aside between 15 and 25 percent of their income now. “If we’re all going to live to 100, we’re just going to have to put aside a whole lot more money than in the past,” she says.
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In response, her daughters ask why they should bother, given the low-to-nonexistent interest rates paid on savings accounts and paltry stock market returns. Mitchell acknowledges there are no easy answers. “That’s a huge obstacle we’re going to face when it comes to convincing the younger generation to save,” she says.
Plan on a second (or third) career for retirement
“You’ll need to retrain, retool and potentially return to school for a new career. You can’t afford to be 50 and have no marketable skills. You have to always push yourself and encourage yourself to take the next step, whatever it is – software on the computer, skills in a profession. If you don’t, you won’t be employable,” Mitchell says.
Proceed as if you’re living to 100
No one knows how long they’ll live, which means we should all assume we’re living for a long time – and prepare accordingly. “It’s very, very expensive to live to be 100, and you don’t know if you will be one of those or not,” Mitchell says. She adds that women born today have a 1 in 4 chance of living to age 95, especially if they are educated and have access to health care. That means setting aside as large a chunk of your income each year as you can manage – perhaps as much as 40 percent, given the low returns savers and investors currently face.
Invest, even if you feel slightly uncomfortable
Target-date funds that shift assets into more conservative investments as a target retirement date approaches can help investors who feel overwhelmed to the point of paralysis when it comes to picking funds. “Not doing anything is the wrong response. It’s better to save something and put it in a diversified fund with a professional manager who’s managing the glide path for you than to do nothing,” Mitchell says. “At least you have a prayer of building up savings.”
Meditate on your future self
“Saving is just no fun at all. In this world, we feel rewarded by shopping, by spending – you get to try it on and wear it to the next party. Whereas saving is the reverse,” Mitchell says. “You’re telling yourself you cannot consume something today, you have to set it aside for a rainy day, or for when you’re 90 years old. So it’s hard for young people to visualize.”
That’s why she’s intrigued by new research that suggests showing people an aged picture of themselves, depicting how they’ll look at an older age, helps them decide to save more now. “The idea is to put you in touch with your future self, so you might begin to care about that future self and take good care of that person,” she says.
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Learn the basics
“Most of us will never be mathematicians, but we have found that a little bit of knowledge goes a long way,” Mitchell says. Her research has found that even a simple financial literacy class in high school, for example, can increase savings rates later in life.
Know it’s not just about the money
“It’s worthwhile to invest not just in saving and pension accounts, but in your human capital – you need training to be successful in that last third of life,” Mitchell says. “And I also encourage people to invest in friendships, communities, families, because it is those networks that will help us age more successfully.”
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VIDEO ON MSN MONEY
Pay off ALL debt including your home, and invest the max into a roth, 401K, real-estate , mutual funds. etc. there is no reason to work later into life, just be smarter when you are young, and have a goal, and the drive to accomplish it.
and don't give me that bullsh!t about how its the Governments fault you're an Idiot, I don't like the greedy bastards anymore than you do , I Just refuse to play the whiny victim card.
SOME money will be better than none. Save what you can. Refusing to save out of a sense of futility will just turn into a self fulfilling prophecy.
We started preparing to pay off our mortgage 10 years ago, buy adding extra money to the principal when we could. Fast track forward Feb 20013, house is ours clear and free.
Being retired Military helped me to prepare for retirement, buy what you really need do away with what you cannot afford.
Have 10 years old cars paid off, credit card debt is paid off each month with cash back cards.
Have our fishing boat, and I garden for our retirement excitement. Volunteer at Food Bank 2 days a week.
Very happy to be in Retirement Mode when everyday is a Saturday.
Stop voting for tax and spend politicians.
Obama has already proposed a tax on all IRA's over a certain dollar amount, he believes that you only need a specific amount to live comfortably and the rest should go to the govt to spend on buying votes.
I always thought I was ahead of the curve but the numbers keep on going up. 15 years ago it was save 10%, then 5 years ago it was save 20%. Now it's save 25%.
Let's just cut to the chase and agree from the beginning it should be "Save 120%".
Hey, look! There's some buffet in the dumpster and it's still warm!
Sleep on a park bench and eat beans and rice 3 times a day.If you need to replace your 30 year
old clothes go to Goodwill.Clean up at public restrooms.Do this for 40 years and you`ll have
plenty.Waste not,want not.
Here's the path to retire on your own terms, in 7 steps:
1) Pay off your debts as fast as you possibly can. If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it. If you want to buy a car, get a reliable beater. Get insurance for $25/month from Insurance Panda. Forget about buying a house until your debts are paid off.
2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.
3) If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land. An acre is good, 5 acres is better. Take the amount you are pre-approved for and cut it in half - that's how much you should spend on a house. Come to the table with at least 20% down and make a couple of extra mortgage payments every year. If you're going to be transferred or relocate every 5 years, forget about buying a house and rent instead.
4) Develop multiple revenue streams. Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Do whatever you can to generate income from multiple sources.
5) Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.
6) Make as much as you can. Save as much as you can. Give away as much as you can.
7) Retire!- the sooner, the better. Be sure you understand that "retirement" doesn't necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.
Don't be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change. Valuations fluctuate. Instead, measure your wealth by the amount of cash flow your assets consistently generate.
I would like to offer some Words of Wisdom regarding earning and saving money:
First, consider what you will be doing with your life vis-a-vis occupation. This is crucial since it determines what you will make in the near and long term. Hence, make sure you go to a good college/university but with a sense of a ROI for your career choice relative to what you will spend becoming "educated". If you are already past college and have been in the real world for some time now, sorry, you should have started saving/investing earlier. There's always faking your own death and collecting the life insurance.
If you cannot get a good college degree and/or you don't have connections in a Fortune 100 company, hopefully you have an uncle with a connection with the Teamsters or some other powerful union to secure an excellently paying job. If this fails, try for God's sake to exploit everyone's favorite Uncle and get a job with the government. Preferably federal but state or city is good too.
Second, don't underestimate "networking" which is just the professionals way (or yuppie-speak) of saying ****-kissing while saving face. You will go much farther in the world because people like you, NOT because people think you are brilliant OR BECAUSE you are brilliant.
Third, men typically marry down, woman marry up....Yes, even in these liberated times. So men, take a page out of the female playbook OR better yet, don't get married at all because if it doesn't work out (and it usually doesn't), you will know what it feels like to be in prison with a guy named Bubba for a cell mate. "Reach arounds" not guaranteed. Your net worth will become your "networthless"; so stay single, get clipped, and tell the ladies the Ferrari is on order.
Fourth, you will save money if you implement the "Going Dutch" mantra while dating. Again, men, take another page. Spend as little as you can on frivolous expenditures (What is a frivolous expenditure? You know it just before you buy "it" but give in to the high circulating dopamine levels anyway) and put that money in a savings account or invest it. Buyer's remorse morphs into liar's regret! Don't tell yourself you really do need that new, exclusive fur-lined shower from France just before you hand over your credit card when you know damn well it's the dopamine talking (and that pretty brunette on your arm, you DOPE-amine!).
Fifth, learn all you can about markets and stocks (especially penny) and invest wisely. It doesn't hurt to have a friend or relative on the Wall Street trading floor or elsewhere with insider trading knowledge. Of course, passing on such knowledge is illegal and never happens except in the movies (ah hem) so just hire a good financial planner named Morty.
Finally, whatever you do, NEVER, EVER, EVER get seriously injured or ill! Buy as much disability insurance as your age and income allows as you go through this wonderful adventure called life. This way, God forbid, if you do get seriously injured or ill, you will have something to fall back on. Believe me, you are not bullet proof and if you do happen to get married, your chances of your holy union surviving without disability income (especially as a man) is near zero. You'd have a better chance of returning from a black hole's event horizon.
There you have it. Good luck on your journey.
Wow , what great ideas. Now why didn't I think of 'building a bigger nest egg'. Or waiting till 65 to retire. Or best yet, get another career!
Please don't publish any more of your lame ideas.
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A Fidelity study found that adult kids and their folks aren't on the same page when it comes to discussing finances.
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