March 12, 2010

Saving For Retirement

Saving for retirement is scary but its easy to understand. I know alot of financial advisors scare people but here is the scoop.

When you retire, you will be living on your savings and income from social security (hopefully). Thats about it. Hopefully you will have a lump sum from years of savings and its common thought that you can spend about 4-5% of your nestegg every year (without any growth, thats 20-25 years after retirement day).

I know there are a gazillion financial calculators on the Internet (I like yahoo finance as a source) but quite frankly, there are just too many variables to bother and do not let a financial advisor charge you for this. Will my kids need money? What will healthcare cost? What will taxes be? What kind of return can I expect? Divorce? Lawsuit? Inheritance?

Now, you can't and shouldn't count on any growth (ask a recent retiree) but very long term, the S&P 500 has returned just over 8% so if you have a portion in the S&P 500 and most in safe govt bonds or CD's, you will probably end up near 3-4%.

You may not touch the principle some years and of course, some years, you will. Again, its nice to plan but the large amount of variables outweigh any real planning you can do so don't stress too much.

Bottom line.  Save the most you possibly can and keep fees very low (I like Vanguards S&P 500 exchange traded fund symbol VTI) and as you approach retirement, you will have a much better idea as to how much that 4-5% a year will be.  It will then be time to plan and adjust your lifestyle to match what you have.

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