Most people worry that they won’t have enough for retirement … often too late. Since I know there are lots and lots of books and articles out there that attempt to tell you how much you need to save, I’m going to approach this a little differently. I’m going to tell you about a basic philosophy that will enable you to get prepared. This article is for those not yet retired. It is based on the wisdom of those of us already retired.
A Little BackgroundOur future is one that has a lot of uncertainty. In my opinion, the old guidelines to invest in the stock market since it will always go up over the long haul, don’t necessarily apply anymore. Have you looked at what has happened in the market? Usually your broker will show you the following chart plotted on a logarithmic scale but I have chosen to show you how it looks on a geometric scale since the log scales tend to hide a very important characteristic. Take a look at the following plot of how the market has performed.
If you had invested starting after the 1930s and then were to retire before the late 1990s, the market would have been a pretty safe bet regardless on when you retired. But if you put your money into the market anytime in the last ten years, you would be gambling. The big question is “what will happen before taking out your money” and lately the market has been very erratic. Given everything else that has gone on, I expect the market to be very erratic in the future. Why I think this is most likely might be the subject of another blog article, but for now, I don’t think you should plan on steady increases. Another thing to consider: the Japanese market has been down for about the last 25 years … markets can go down and stay down for a long time.
All you can do is attempt to save prudently and to build up a large enough cushion to enable you to better survive the coming roller coaster.
Government SupportI imagine that they will eventually partially fix both social security and Medicare, but don’t expect it to be as generous. Take a look at the following site and follow some of the links for more information.
Medicare and Social Security in Trouble
What Should You Do?Prepare for a roller coaster ride. If you were planning to take a major roller coaster ride, I don’t think you would eat a big meal right before hand; in fact, you would probably be very conservative in your eating. You need to do the same with your life style.
The key to having enough in your retirement years requires two adjustments. First, reduce your style of living long before you retire, and second, save a lot more money than you think you might need. Actually the two go together. If you reduce your current style of living long before retirement, you will be able to save a lot more. The goal is to reduce your style of living, right now, down to a level that you think you can maintain after retirement. That way you won’t be making a big adjustment when you retire. You probably won’t hit it “right on” but you can reduce the difference considerably and you will have lots of time to learn to make the necessary adjustments while you are saving significantly.
Have you thought about adjusting your expenditures to the point where you are living on only 50 to 80 percent of your income and saving the remainder? You probably can and should. If you think this is too hard or that you can’t do it, take a look at the blog referenced below. It is written by a guy who retired very early in life. If you read the articles in his blog, which I highly recommend, you can see how he managed to retire early and how he lives now. It will give you some ideas on how to do it. Even if you prefer to not be so radical, a little of his philosophy will take you a long way towards being better prepared.
Click here to look at: Early Retirement Extreme
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