I was overjoyed to receive such an outpouring of response to last week’s article on the Baby Boomer retirement situation. It occurred to me that I may be preaching to the choir. The fact that you are reading this, already proves that you are more actively involved in your financial planning than your average peer. If statistics are accurate, and only 33% of us have even attempted to calculate how much we should be saving to meet our retirement goals, I would wager that a lot of us here are part of that 33%. For those of you who wrote though and expressed a sense of panic and despair, don’t give up. There is a lot we can still do.
We have a wealth of experience and knowledge right here amongst ourselves. I was vividly reminded of that after reading all your responses. I wish I could share them all because there were some real jewels in there. From those of you who have a handle on your retirement though, I noticed a lot of recurring themes and tips. So I thought it would be really valuable to share your tips- from the readers, to the readers.
“I had such big dreams growing up. If I sat down now to actually do the math, I would be frightened out of my mind, because I did such a %$§”&$ job of planning, and made so many financial mistakes along the way. The realization that I will probably not be such a big success would be too depressing.”
In solving any problem, the first step is awareness of the problem. I think we are all now aware of the gravity of the situation. I know that it can be overwhelming, and it seems like a long way off for some of us, but we have to face reality objectively if we are going to prepare ourselves.
“Go get a retirement calculator, get a reality shock and get it over with, using realistic assumptions.”
2. Live within your means
“Your self worth is not dependent upon a display of material wealth. You do not need the newest car, the biggest house, the best clothes, etc. You must control your emotional spending impulses!”
I don’t know what has happened to our society, but I feel that we have gone wrong somewhere in how we value a person’s worth. Many of us are so wrapped up in keeping up with the Jones’, that we are sabotaging our futures. When you look at the average credit card debt, it is clear that we are a society of materialism, excess, and debt. But as my mother used to ask me, in a fit of rage, “If your friends jumped off a cliff, does that mean you would too?!”
This doesn’t mean I advocate living like a pauper. I enjoy my hobbies, and I wouldn’t want to put off today for a better tomorrow. But all things in moderation. We don’t want to spend impulsively, and we don’t want to confuse want with need. I don’t need a Porsche if that means I will be jeopardizing my future. My Dodge Durango runs fine. And when I look back at family vacations, the road trips and camping trips usually stick out as more of a bonding time than the ski trips to Switzerland.
“Living within our means is the only honest choice left for most boomers that are quickly running out of time. It is interesting to remind ourselves that our depression-era parents/grandparents preached these timeless lessons forgotten over the years.”
3. Try to live debt-free
“To &%$§ with a second vacation home, better to have one mortgage-free house!”
This one is the same principle as living within your means. We simply want more than we have. If you have no savings and are borrowing off of the equity in your home to buy a speed boat, something is wrong.
4. Income Producing Real Estate
“ …Instead of buying a new car, boat, or vacation, we used the money for a 'down-payment' on a six unit apartment. Yes they are a lot of work, problems, etc., but they are 'paid for' now . The apartments have put both kids though college, and will 'cash flow' very nice in our retirement...”
There were a lot of responses that talked about income-producing real estate as a wonderful investment. My sister made a killing in the stock market, took it all and bought some apartments for a good price. She is now in early retirement, spending half the year on her sail boat. I have bought some real estate as well as part of my retirement plan. I don’t think it’s a bad way of diversifying.
5. Active Money Management
“I am what I believe many retirees have become. Investors who have decided to do it themselves, by default…. The past two years have made the "buy and hold" theory look like a cruel joke… Many of us have evolved to a "trust nobody, every man for himself" mentality.”
With growing disillusionment in Wall Street, more and more investors are taking direct control of their portfolios. Last week I noticed in the news that Ameritrade's total customer base reached 1.909 million. And why not? We have worked hard for this money, so it doesn’t always make sense to then hand the car keys over to someone else.
And from your responses, its working. In many cases you said that the portfolios you are managing yourselves, are doing better than the funds you are invested in. “Buy and hold” isn’t working anymore. But when we take an active, educated approach, with stops, flexibility, and proper money management, I believe we will achieve better results. Yes, it is a lot of work, but its your money!
“I think stops and targets and not subscribing to the old buy and hold are key…eliminating the one or more "wipe outs" are keys to steady growth…I set targets, protect profits with stops, and limit losses with stops...”
6. Save, save, save!
“I think the key is to save as much as possible. It gets you used to living on less now, in addition to building up a balance quicker. I think controlling your outflow is more important than trying to figure out to increase your ROI.”
Many of you also suggested always contributing the maximum amount to your 401K. It may hurt a little now, but if you don’t you may just be hurting a lot later.
I hope you don’t mind that I postponed sharing my own retirement plan until next week. I had enjoyed your responses so much, that I felt they were important to share. Please keep them coming! And have a nice week.