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21 Basic Truths of Retirement Planning
1. There is no Lone Ranger coming to rescue the Baby Boomers and Gen Xers. There is not enough money anywhere to foot the bill: not in Social Security and Medicare, nor in our pension plans, nor our personal savings. The U.S. taxpayers in aggregate cannot tax themselves into solvency.
2. If you're old enough to have sex, you're old enough save for your retirement.
3. Saving early in life will let the power of compound interest do all the heavy lifting. Wait, and you will have to do it by brute force of self-denial. Wait still longer and it will not be possible to retire at all.
It is vastly more important that you hit upon a good investment
plan and save regularly, than that you find the most perfect,
brilliant investment plan and save desultorily.
5. People with savings will end up at a tremendous advantage over those without. This latter group will include many of your friends and neighbors.
6. To postpone planning your retirement is, in effect, to have already made the decision about where you are headed. Hint: it's not Millionaire Acres.
7. The X-factor of unknown future tax rates, as well as the tenuousness of Social Security and Medicare, makes it exceedingly difficult to plan accurately. Everything points to the need to err on the side of oversaving.
8. If you want a guarantee, buy a toaster.
9. You have to get off the high-consumption treadmill, maximize your human capital, and plan to work as late as possible (preferably into retirement, at least part-time).
10. You will be paying for the bulk of retirement yourself, out of your personal life savings.
11. Those who have saved will be made to pay for those who have not. Unfortunately, this means you have to save even more.
12. Hardest hit of all will be the upper middle class. They will likely see little from Social Security and Medicare, meanwhile the IRS will turn them upside down and shake them by the ankles to get the money to pay for everyone else. With vastly insufficient savings, their lifestyles are going to shrink like an Armani suit in the dryer.
13. If you are a high-income type, don't use a self-help book or a web site calculator to plan your retirement. Get the professional help that you need, preferably sooner than later.
14. You need to plan for your maximum life span, not your average life span. If you are 65, there is a 5 percent chance that you will live to 100, and a one percent chance that you will live to 105.
15. Investment returns going forward from current valuation levels may well be lower than they were during the boom times of the twentieth century. Just because you are a long-term investor does not mean that you will get historical rates of return.
16. The new retiree is of necessity a long-term investor. If he goes too conservative, he runs out of money later. That said, early retirement is by far the most dangerous time for your investments.
17. You won't be able to figure this out once-and-for-all. You have to monitor your progress and make mid-course corrections.
18. The advantage conferred by dollar cost averaging on the saving side is directly handed back by negative dollar cost averaging on the withdrawal side.
Long-term market timing can add value, both to your savings as
well as to your withdrawals. Value the market before buying or
selling. This is the cure for negative dollar cost averaging.
20. Do not put all your savings into one type of account: IRA, Keogh, taxable, etc. Who knows where the tax man's heaviest hand will fall in the future?
21. Nature's cruel joke on retirees: you'll probably have a lot of money very late in life, when you can't enjoy it, but you only get a pittance early in retirement, when you could really use it. Thus, the problem: how do we bring Oz back to Kansas?