The difference between working yourself to death and retiring comfortably is smaller than you think. We like to believe in the caricature that rich people retire rich and poor people don’t retire. Truthfully, much of the difference between retiring and continuing to work comes down to a few choices. Let’s review three tricks that separate successful retirees from workers who are too insecure to retire:
1.) Time it properly to retire rich
Investment professionals like to tell you that successful investing is about time in the market. Timing the market, they insist, is far less important. That’s true for putting money in. The more time you have to take advantage of the power of compound interest, the better off you’ll be.
When it comes time to retire and start making withdrawals, though, timing does matter quite a bit. Consider identical workers who made the same median income. Each saves 10% over their 35-year career. Yet, they end up more than $200,000 apart in retirement savings.
How? One retired during the height of the Great Recession in 2009. The other waited four more years until 2013 when stocks had rebounded. It’s not just that stock prices rebounded during that time. It also gave the one who worked longer four more years of buying dirt-cheap stocks that shot back up in value.
The lesson here is simple: if the market is down, keep working and investing. Wait another few years for things to rebound and reap the rewards. If our early retiree worked four more years, his retirement savings would have doubled. Market prices tend to even out over time, so prices that are low now will return to normal. Waiting until they do can make your retirement much better.
2.) Don’t over-commit, especially when things are good
You may already know you should save between 10 percent and 15 percent of your income. Aim to split your savings between conservative and aggressive investment options. However, many people forget one important part of that split: some part of your aggressive investment needs to remain in cash.
As stock prices rise, you need to be leaving yourself more and more cash on hand. This is so you can take advantage of the inevitable retraction that follows these expansions. “Buy-low, sell-high” isn’t a well-kept secret. But it’s still sound advice for retiring with enough money to support a luxurious post-work life.
How much cash should you keep in your aggressive investment portfolio? The frustrating answer is that it depends on a variety of factors. If you’re not heavily involved in your portfolio, you likely don’t need to keep more than five percent cash in your account. If you’re an active participant in your retirement investments, keeping a little more cash on hand isn’t a bad idea. This will let you pick up undervalued stocks and reap the profits of your savvy judgment.
3.) Seek professional advice to help you retire rich
Spectrum Group conducted a survey of households with more than $1 million in net worth. They found that only 20 percent of them see themselves as experts on investing. About 40 percent of respondents are adviser-assisted or adviser-dependent investors. That means they consult with a financial expert before making most of their investment decisions. Another 30% are “event-driven.” They get professional help before major life milestones, like retirement or home buying.
There seems to be one big difference between millionaire investors and less successful ones. The millionaires recognize their weaknesses and find help to compensate. They devote their effort and energy to what they’re good at – their job or small business.
If you’d like to make a million-dollar decision, consider United Texas Credit Union for your retirement planning needs. There’s no harm in getting some help for your retirement savings plans. Our knowledgeable representatives are standing by to assist you with opening or funding an IRA, rolling over a 401(k), opening a certificate, or saving money in any one of a dozen other ways. Call, click, or stop by today!
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