Retirement reflections dance behind my eyelid. I’m reminded ours is a nation of undisciplined savers, as I slide back into my hammock hung between two ancient pines. The river roars past me making its way south to the Rio Grande. Great rivers form the earth’s circulatory system revealing Mother Earths health and well being. Rivers also provide us answers to our questions. All too often rivers prompt us to ask better questions. How many of us will have a nest egg suitable for retirement?
Turning on my side I ask my question directly to the river. Is my nest egg suitable for retirement? Pheasant and quail work their way up the river valley. Wild turkeys scratch at the ground, Magpies, and Starlings seek the perfect perch. An English teacher asked her 8th grade class to write an essay on what they would do if they had a million dollars. Larry handed in a blank sheet of paper.”Larry!” yelled the teacher, “you’ve done absolutely nothing. Why?” “Because if I had a million dollars, that’s exactly what I would do!”
The numbers are pretty straightforward regardless of the formula used to determine the proper size of one’s nest egg. Whether it is 9x’s one’s highest salary times 25 years or 75% – 85% of one’s salary five years out from retirement times 25 years. The number is likely in the $375,000 to 600,000 plus range depending on an individuals personal income levels. This assumes conservative growth on investments and a 4% annual withdrawal rate for 25 years. It is recommended to have one’s mortgage paid off before retiring. Experts warn 250,000 is likely the amount needed to cover a retirees medical costs.
I recommend future retirees save smart, and aggressively while being consistent and saving 10 – 20% of their income. Take advantage of dollar cost averaging, look for large mutual funds with proven successful managers that have averaged 10% returns over the last ten years. Stick with no load funds with low expense ratios or A shares with commissions paid upfront. Thrift savings plans should be balanced 50% in the C fund, 40% in the S fund and 10% in cash (money market fund). Please remember you are in these accounts for the long haul. You’ll have good years and bad years but you’ll leave your money in the account. Over time things will balance out. Avoid fixed annuities, try to keep your money in programs with minimal restrictions.
The following strategy is recommended for saving money with or without your financial partner/spouse for retirement:
Match all dollars at work in pre – tax programs, 401k, 403b, 1099 employees should contribute to the SEP program
Next contribute to Roth IRA, if your over 50 years of age use and max out catch- up options
Once you’ve maxed out your Roth IRA and still have money to contribute go back to your pre-tax program at work and make additional contributions
Once you retire consider buying bonds up to 20% of your portfolio (nest egg) depending on the market
Once you retire consider keeping up to 10% of your portfolio (nest egg) in cash
Don’t get too conservative to fast you need to grow your nest egg throughout much of your retirement years
Once you turn 72 -75 years of age consider keeping up to 30% of your portfolio (nest egg) in cash, the rest in bonds
Most retirees will be successful by saving money (lots of it) and working as long as they can, hanging on to health insurance, and then living comfortably on pensions, social security and or rental property income. Their accumulated savings (nest egg) are such that they will comfortably weather any potential erosion of their buying power over time; perhaps leaving less to their heirs than previously expected. Other retirees may be concerned they will outlive their money.
Staring intently into crystal clear, braided pocket water, I smile, recalling how yesterday I was getting lost in what I love doing. My financial house is in order and I’ve balanced my Lifetime Checkbook. I know precisely how I can keep my life – long living costs in check. I genuinely enjoy being as busy as I want to be creatively. I’m laser focused on what I am best suited to do fueled by the faith it is all worthwhile no matter what.