Understanding the Psychology of Retirement Planning

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Start by listing all your liquid assets, cash or investments that can be easily converted to cash like stocks, bonds, etc. Categorize them by time until needed to buy something - up to 18 months (cash, Money Market), 18 to 36 months (bonds/bond mutual funds - Gov't, High Yield, International), 3 to 5 years (blended stock and bond mutual funds - Growth & Income, Equity Income, Total Return, Blend), 5 to 8 years (large company stocks, global stocks, and stock mutual funds - Growth & Global), over 8 years (small cap, mid cap, and international stocks - Aggressive Growth, International, and Emerging Market). Note: Global and International mutual funds are different. Global invest in both domestic and overseas companies. International must invest in only overseas companies. The first priority - control your cash flow. Adjust your W-4 filing to closely match your withholding to your tax bill -breakeven plus/minus $300. File W-5 for Advance EIC. Do not purchase unnecessary benefit packages, specific illness, extra life insurance, etc, Do buy short and long term disability. Don't shop at high cost sites like gas stations. Buy only term life insurance as a private policy Vs through your employer. Insurance purchsed through your company will be lost if you leave the company or the company leaves you or you will have to convert it to a high cost product with a savings component at a poor rate of return. Establish an emergency fund of at least $1500 or your take home pay (THP)(gross - taxes only). Make automatic payments to build it toward three months THP. When reached, cut those payments in half and continue to build toward six months THP. Do this step even if you have significant debt. I have never seen anyone get out of debt unless they also saved for an emergency fund. Establish a debt elimination program. Rank debt by size and interest rate. Under $500 to $1000, ignore the rate and pay off by size, smallest first. The rest rank by rate and pay highest rate first. Don't buy cars you cannot pay off within 36 months. If you have a current car loan significantly over that, sell it and purchase something you can afford. Retirement, take the free money, i.e. matched retirement plan up to the maximum match. Then fund your Roth IRA up to the maximum. If you have more resources to fund retirement, put additional into the company plan. Do not do college savings until your retirement program is on track to replace at least your current income at a 5% withdrawal rate. When you save for your childern's benefit remember there are three main ways. Coverdell Ed Savings Acct. can be used for kindergarden through college. Consider your state's 529 plan next. Finally, with kids you will need to provide for cars and weddings at some point. Use the UGMA/UTMA for your non-college savings needs. When kids have earnings, help them start emergency funds and Roth IRAs. When you have $100000 in wealth, look at funding a Long Term Care policy.

Larry Hillman of OK 5:19PM November 11, 2010

There are some good points this article brings up. But there are some basic things all people should know that rarely gets taught.
I'm going to pass on some basic stuff here. You start with a foundation, loss protection(worst case),debt mgmt(intrest works 24/7 for you or against you),short term savings(dont tap into your long term savings),& long term savings. Doing all these at the same time!
3 THINGS YOU HAVE TO KNOW!!!
TIME STOP WASTING IT. He mentioned compounding intrest you see the results at the end.
RISK VS. RATE OF RETURN. Get a decent r.o.r. with back end safety
3 WAYS TO ACUMULATE. Taxed, Taxed Deferred, Tax Exempt. Use them all.
Theres no right way for every person. So just saving isn't going to do it.
There are people out there who can help you the most expensive thing you own is a closed mind.

Chad of CA 1:05AM September 13, 2010

I have some money that I have earned in a Liquid Asset, meaning, it's just sitting there not earning any interest, but it is also not losing any of it's value.
I have been told to invest in an IRA, but I don't know how to pick out an IRA & I don't want to lose any more money in the stock market as I am approaching retirement age. Any advice?

Leah of CA 1:28PM August 14, 2010

I am financially frugal, have saved for 30 yrs and never bought a new car. I have managed to create a retirement plan that will allow both of us to stop working at jobs this year at 60 and 55 respectively. I have had "professional fee only" planners, financial advisors and they all sucked. The small fees will erode your gains in this economy and they really don't mange your money the way you do, they invest in the market, tell you to ride it out when it's dropping and when you ask how they intend to maintain your prinicpal and make a decent return, they'll always say "Nothing is guaranteed", Yeah, I can do bad all by myself!!!

H. Wayne of CA 10:04AM August 14, 2010

The best kept secret is to move to Mexico and collect SS there. Simply go to southern Arizona and cross the Rio (it is narrow and shallow south of Bisbee) and rent a home in a small village in northern Mexico. Apply for Mexican Social Security which pays more than double what you can get in the U.S. Plus, health care is free in Mexico and the Meals on Wheels van delivers two free meals a day to everyone. Just don't tell a lot of folks here, or Mexico will be overrun with millions of retired and unemployed Americans.

Savage One of AZ 2:28PM August 13, 2010

In regard to the comment "a young couple thinking about spending $25,000 on a new car versus a very nice, preowned car that will last every bit as long for $12,000. They don't think about that as a retirement decision. They think about it as a transportation decision. Should you spend it or put it in an account? The only question they think about in whether they should spend $12,000 or $25,000 is 'Do we have $25,000?';" My view - A $12,000 used car that was $25,000 when new is probably on average 5 years old. So if the useful life of a car is 10 years then how do you conclude that this used car will last every bit as long as a new car? In addition, at least for the first 3 years a new car will have no maintenance or repair expense except for LOF and tire rotations. Also - a dealer is lucky to make $500 on a new car but probably makes $2,500 profit on a used car. A used car also loses a lot of value the moment you drive it off the lot. Just saying - buying new may not be a bad financial decision.

Jake of OH 10:36PM August 10, 2010

"Save more. Spend less."
There, I'm a financial adviser.

Mike of CA 10:17AM August 10, 2010

I am 62 yrs of age and have been working in California over 33yrs. Need your advise for getting social security benefit. I am almost geting nothing from this ss department. I can not even pay the rent what they are going to pay me. Please advise how I can increase this benefit $wise.
Send me E-mail.
Monica

Monica Singh of CA 4:40PM August 09, 2010

I have worked less than half of my adult life and I didn't start saving for my retirement until I was in my forties. Even so, I will be okay in retirement. I have never profited from any house appreciation because I rented for over 40 years. Moreover, I have never profited from stock investments because the majority of my savings are in safe investments. The key is to save 40 to 50 percent of your income once you start making a decent income.
I disagree with the author that you need a financial advisor. I have never used a financial advisor and I don't ever intend to use one.
In fact, I would recommend to people that they stay away from financial advisors, regardless of whether they are fee-only or work on a commission basis. I don't place any credibility on whether they are accredited with any so-called financial association. These associations tend to be self-serving, trying to exclude others from the particular area of work.
With so many baby boomers not having saved enough for retirement, what percentage of the baby boomers working as financial planners haven't saved enough for retirement themselves.
Did these financial advisors see the housing bust coming and tell their clients to get out of housing? I bet over 95 percent of the financial advisors took a beating on their houses and investments because they were also the same ones advocating that a house is a great investment and that stocks were a great investment. If these people were so wrong, why would you place any trust in them? If they themselves haven't saved as much as they should have, they have no credibility with me and they should have absolutely no credibility with anyone else.
If I ever considered hiring a financial planner, I would ask him or her to provide proof in the way of their own investments and assets over the last 10 to 20 years to convince me that they followed their own advice and that this advice paid off big-time for them.
Incidentally, Larry Winget in his book "You're Broke Because You Want to Be" advocates similar advice in regards to hiring a financial advisor.
In short, once you have a sizeable amount saved, consider hiring a financial person to help you invest your money but only if the person can prove that he or she has at least 10 to 20 times as much money as you have. If the financial advisor can’t prove to you with certified accounting documentation that he or she has saved a big amount of money using their own techniques, don’t hire him or her. Why would you want to pay someone to manage your money if he or she is broke or close to it? Trust me, you are liable to wind up broke yourself.
Ernie Zelinski
Author of "How to Retire Happy, Wild, and Free"
(Over 120,000 copies sold and published in 9 languages)
http://www.retirement-quotes.com/
and the forthcoming "How NOT to Retire Broke: Prosperity Principles to Help Your Create $500,000 or Much More for Your Retirement"
http://www.thejoyofbeingretired.com/

Ernie Zelinski 2:06AM August 03, 2010