2 Things To Do Today To Retire Rich (Or At Least Worry Free) April 23, 2017
Every success in life begins with understanding what it takes to realize that success and then working towards that goal over time. Retirement is no different. The younger you are when you develop this understanding, the more likely retirement will meet your hopes.
What does retiring successfully look like?
It’s different for everyone, but there are some common themes:
- The financial ability to experience life on your terms.
- Freedom from financial worry regardless of macro-economic circumstances.
- Little or no debt.
- The ability to help those you want to help, be it children or charities.
Step 1: Break your retirement down into the core financial elements, or “buckets,” you will need to be successful. Each bucket has a specific role in your retirement success.
Basic Living Expenses. Food, housing, transportation, medical care, emergency cash, etc. Very unlikely Social Security will be enough.
a. Understand how much income you will need.
b. Understand how much you must invest in this bucket to generate the income you will need.
c. Understand the types of investments that fit this bucket and what they pay – this bucket should take minimal risks and be as close to principal guaranteed as you can manage.
d. Treasury bonds, high grade municipal or corporate bonds, other fixed income solutions may be suitable including SOME annuity types (most annuities are bad, get in touch if you have questions).
Discretionary Spending. This is your play money: travel, new cars, dining out, shopping, second homes, whatever you like to do that you could live without if push came to shove.
a. Determine what this expense is likely to be annually.
b. Understand what you need to invest in this bucket to support your discretionary spending in most years – this bucket should take moderate risk to meet withdrawals with minimal principal reduction in most years.
c. Diversified stock allocation with recession plan, growth & income strategies with non-correlating or reduced correlation elements (i.e. everything in your portfolio shouldn’t be going up, or down, at the same time). Partial hedges can play a useful role in this bucket.
d. Limited exposure to single stocks or growth stocks/sectors, dividend investment strategies.
Long Term or Legacy Assets. These are dollars you don’t expect to draw on for 5 to 10 years or more. They can be earmarked for charitable giving, helping children or grandchildren, or whatever aspirational dream you might have.
a. Focused on long term growth to take advantage of the incredible compounding power of the markets.
b. Diversified stock allocation with focus on sectors with higher historical growth.
c. Exposure to blend of blue chip/growth stocks, dividend strategies.
At this point you should have an idea how much you are going to need in each bucket by the time you retire.
Taking step 2 is the difference between those that enjoy retirement awesomeness and those that get by, or worse, are forced to continue working in retirement even if they don’t want to.
Step 2: Set up a budget to make sure your savings are on track to fund each bucket. Start with funding Basic Living Expenses. Set up automatic deposits into your investments accounts with your bank. Don’t forget to max out your 401k and retirement accounts.
A point of clarification – just because the money you are saving is going to be used to fund Basic Living Expenses doesn’t mean it should be in bonds/fixed income today – what you invest those dollars in today depends on how far you are from retirement. The same with the other buckets.
Even if you can’t put away what you need to from each paycheck today, save as close to that target as you can manage without too much discomfort. Every dollar counts. It will make a difference.
This doesn’t mean you should endure hardship today, but if you are like most Americans you are spending money in places that don’t really add value to your life and that steal from your future.
Want a great retirement? Get started today by taking some time to think about your buckets, then create a plan to fill them.
Need some help? Retirement income/investment planning is something my firm does with everyone that invests with ACI’s guidance. If you just need a little direction, go ahead and get in touch – I’ll point you down the right road and even have a couple free tools to help you on your way.
If you need or prefer a more comprehensive approach, ACI is happy to help. As far as I know, ACI is the only firm to offer a 100% satisfaction guarantee on investment and income planning. If you aren’t 100% satisfied, you don’t pay. Pretty simple.
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To Smarter Investing,
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.