The early bird catches the worm
Just as the time to start saving for college education is when the child is born not when she enters high school, the time to start planning for retirement is when you enter the workforce or better yet, as a teen, having a parent or grandparent open a custodial IRA for you. If you make the maximum IRA contribution from age 21 through 35 and stop, you will still have accumulated more than starting at 35 and stopping at 64. The early bird catches the worm.
Weighing the different options
What vehicles do you employ having already committed to retirement savings? If an employer offers a defined contribution plan, take full advantage of the matching program. Put aside as much as you legally can, ideally 15% of your gross income. If you are self-employed start with a SEP-IRA. If you are convinced that income taxes will be higher in your retirement years, consider a Roth IRA.
How should you allocate your retirement resources among asset classes? Despite the past decade’s anemic performance, equities, or common stocks, offer the best returns among financial assets. Maximize your allocation up to your comfort level. Consider exposure to international markets, even the non-BRIC emerging markets, and selected industry sector funds. (Historically, active mutual fund managers have beaten international index funds.) If you have drunk the John Bogle Kool Aid about index funds, don’t mindlessly buy a market capitalization weighted one. Index funds tend to be concentrated in the most overvalued sectors at the top of the market, just before bubbles burst. In recent years, equally weighted index funds have produced superior returns.
When you have accumulated a nice nest egg, it’s time to graduate to a portfolio of individual securities, contact us. Or if you want to get to that threshold sooner, consult us earlier.
In preparation for retirement, beyond the above, prepare a budget, estimate health care expenses, forecast your longevity, and assume no more than a 4% withdrawal rate from your assets.
Once you are our client, we will provide you with the confidence that your retirement savings are taken care of as skillfully as possible and as you reach your golden years, we can discuss strategies for making withdrawals. “Helping you achieve financial peace of mind and providing guidance with navigating your financial future is our ultimate goal.”
