5 Steps to a Cash-Rich Retirement
Millions face the most difficult financial challenge of their lives right now … in what should be their most prosperous ones.
Here’s how to join the 12% of Americans who can actually afford to retire…
Regrettably, one in five Americans report they’ll never be able to retire. They just haven’t saved enough.
Fact is, those who are saving will only replace 57% of their current income in retirement. That’s including social security, pensions, etc. And it’s not nearly enough…
At this rate, a $50,000 income drops to just $28,500 a year.
Cutting back won’t maintain your particular lifestyle – let alone enhance it. Especially when healthcare costs alone could be in excess of $200,000.
But, by planning for retirement and making the five moves below, you can secure a cash-rich retirement. Whether you’re just starting out, or have already transitioned to a fixed income, here’s what it takes to never run out of money.
Cash-Rich Retirement Step 1: Devise a Plan
First, you need to know what you’re up against. Take a look at how much you’ve already saved. This will help you determine how much more you need… and when you’ll need it.
To maintain your standard of living, you’ll want to generate 70%-85% of your current income in retirement.
But if you want European vacations, ski trips to Aspen, and money to spend on the grand kids, you’ll need to aim a bit higher. Then you’re looking more to the tune of 125% to enhance your lifestyle in the golden years.
Be sure to factor in the following:
- Spending habits (track them for 6 months, or a year to really know them)
- Inflation
- Expenses that will be eliminated when you retire, and those that will arise
- Cost of health insurance
- All of your income sources, including Social Security
There’s a great deal of chatter about the future of Social Security. But you can cut out the static. Simply look at your benefits statement to determine your cut. Or visit the Social Security Website at www.ssa.gov for more information.
Now that you’ve come up with what you need to save for retirement, here’s how to reach your goal…
All it takes is one calculation using this special tool. Just plug in the amount you’ve saved, how much you need, and the number of years until you retire. The result will be the percentage return you need to make from now until retirement to reach your goal.
Coined “Personal ROI” by New York Times bestselling author Michael Masterson, this number can keep your retirement savings on track. Once you know your “Personal ROI,” choose the appropriate investments to produce your needed return. (This article will show you how, whether your Personal ROI is 12%, 50%, or even higher.)
Cash-Rich Retirement Step 2: Save Aggressively
Save, save, save… even if it means lifting up the couch pillows and finding spare change. You need to save aggressively.
Truth is, the #1 factor determining if you’ll run out of money or not in retirement is how much you stash away now. If you’re not on par with what experts recommend, you could be in trouble.
Saving even an additional $20 a week – very possible for most – can hand you thousands you would have otherwise never seen…
| Number of Years Saving $20 a Week | 5% Average Return | 10% Average Return |
| 10 | $13,700 | $18,200 |
| 20 | $36,100 | $65,500 |
| 30 | $72,600 | $188,200 |
Source: Retirement Confidence Survey, Employee Benefit Research Institute
Where you stash your money is important, too…
Cash-Rich Retirement Step 3: Protect your Nest Egg with Bulletproof Asset Allocation
Whether it’s in your 401(k), Roth and/or Traditional IRAs, or a standard (taxable) brokerage account, you’ll want to diversify your holdings. (Remember to take all of your accounts into consideration.)
It’s your “asset allocation” you should pay particular attention to – how you spread your investments across different asset classes. Specifically, stocks, bonds, real estate, cash and precious metals.
By investing in a variety of non-correlated assets, you position yourself to gain while protecting yourself with diversity. If one asset class is doing poorly, another is likely to do well, and can improve your overall return.
Of course, everyone’s risk tolerance is different. But take a look at what an 80-year history tells us…
- Safe Portfolio 20% stocks, 80% bonds
Throughout history, this portfolio has averaged 7.0% a year.
Its WORST year was a loss of 10.1%.
- Balanced Portfolio 50% stocks, 50% bonds
Throughout history, this portfolio has averaged 8.7% a year.
Its WORST year was a loss of 22.5%.
- Risky Portfolio 80% stocks, 20% bonds
Throughout history, this portfolio has averaged 10% a year.
Its WORST year was a loss of 34.9%.
What’s the perfect mix?
Alexander Green, Investment U’s Chairman and The Oxford Club’s Investment Director, recommends the following asset allocation model. It’s the ideal blend of stocks, bonds, precious metals and real estate… based on Harold Markowitz’s Nobel Prize-winning investment philosophy.
In short, you want your retirement assets to be around as long as you are. Following the Oxford Asset Allocation Model can improve your odds. Just to be sure to rebalance your holdings every year, bringing each allocation back in line.
Cash-Rich Retirement Step 4: Eradicate Debt… and Turn the tables on Interest
Shockingly, American household debt now outweighs earnings by more than 8%, according to the Center for American Progress. It’s time to turn the tables on interest… Consider what adding some pocket change to your monthly payment can do. As little as a dime a day can save you thousands of dollars in interest… and shave off years of repayment…
| Additional Daily Payment | $5,000 Balance | $10,000 Balance | $15,000 Balance |
|
10 Cents |
$2,257 |
$3,060 |
$3,545 |
|
25 Cents |
$4, 148 |
$5,970 |
$7,112 |
|
$1 |
$7,624 |
$12,615 |
$16, 168 |
Source Slash your debt by Detweiler, Eisenson & Castleman
Start by paying off your unsecured, high-interest credit card debt first. Then tackle secured debt, like your mortgage and your auto, boat and RV loans.
Making a 13th mortgage payment every year can help pay off your home sooner and you pay less interest overall.
Say you take out a 30-year, $150,000 mortgage at a rate of 5.625%. Making the standard 12 annual payments at $863.48 a month costs you $160,854.46 in interest alone.
But if you make one more payment a year, you can pay off your loan six years earlier. Plus, you pay $31,035.44 less in interest.
You can make this 13th payment over time, too…
Pay half of your mortgage payment every two weeks (14 days), and at the end of the year you will have made 26 half payments. That’s the equivalent of 13 full payments a year.
Cash-Rich Retirement Step 5: Keep Investment Fees Down
Don’t give your hard-earned money away to brokerages in the form of fees. As Louis Basenese, The Oxford Club’s Associate Investment Director and a regular contributor to Investment U, will tell you…
Small fees add up.
Without fees, a $100,000 portfolio earning 10% a year grows to $11.7 million after 50 years. Add in a 1% fee, and your total value melts to just $4.6 million. (Only $794,000 of that difference is actually fees. The rest comes from the lost gains associated with those fees compounded over time.)
So trade as little as possible.
We also highly recommend using trailing stops – the best sell discipline you have at your disposal.
A “trailing stop” follows the price fluctuation of a stock, and adjusts accordingly. We recommend selling shares 25% below their high, or 25% below your entry point – whichever’s higher. Here’s how it works…
If you bought your stock at $5, your initial trailing stop (sell point) should be set at $3.75 – 25% below your entry point. If it goes to $10, your new trailing stop is $7.50. If it rises to $20 without falling by 25%, then your new trailing stop is $15.
Using trailing stops will ensure the markets, not impatience, dictate your exit points. Plus, it’s an automatic way to cut your losses early, and let your winners ride. You will never take an unacceptable loss. And you won’t incur excessive trading fees, either.
~ The Investment U Research Team
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