BEN STEIN
Posted on 10/05/2005 12:07:16 AM PDT by Choose Ye This Day
One of the great cliches of life, often thought and said by us all, is this: "How I wish I knew then what I know now. What a far better life I would have." How true this is.
The problem is that you cannot go back in time to fix your life. But you have an even more valuable opportunity. You can employ what you know right now, this very instant, to take better care of the you who is going to be old and gray and then older and grayer.
You cannot imagine how important this is in the context of retirement planning. You can look at it on the most personal level. You, who I'm assuming are a young man or woman in your 30s or 40s, will some day retire. Either you will be forced to by your employer or you will be forced to because you'll be tired or ill or just plain sick of working. Yes, you may still do a bit of work, but at 70 you are not going to want to work as hard as you did when you were 40 -- if, indeed, you want to work at all.
Who is going to pay for your expenses when you stop work? Social Security? Maybe for us old people it will be there, but for young people its future is dicey indeed. Mr. Bush was not lying when he said the system would be bankrupt in a few decades if not sooner. Will your private pension take care of you? Not too likely. Only about 15 percent to 20 percent of workers have meaningful defined benefit pension plans and most of these are government workers. In the private sector, the sound and sizeable defined benefit pension plan is becoming as extinct as the Dodo bird.
So, who will rescue you? Why, the current, contemporary you, that's who. This analogy, thought up by my pal and co-author Phil DeMuth, is both frightening and reassuring. It's frightening because we humans often dislike responsibility. It's liberating because if we're smart, once we know the facts of a danger, we take action to avoid it.
In the course of this column, I am going to tell you a lot of actions to take to save your retirement, but the first one I want to tell you is probably the most vital: Start early. The difference between starting early and starting late is stunning. Just to give you an idea, check out this scenario.
Assume you start working at age 21. Assume that, adjusted for inflation, your real income grows by 100 percent in the course of your life (a very modest assumption). Assume that you invest in a broad portfolio of the stock market, say the Vanguard Total Stock Market Index Fund (VTSMX). Assume you take the very smart advice of my other investment pal guru, Ray Lucia, and keep lots of ready cash in a bucket so you don't have to tamper with your stocks and can keep letting them compound over long periods of time. Also assume you want to retire on 80 percent of your last year's salary before you retire at age 65.
If you start at 25 with six months' salary saved, you need only save 3 percent of your total, pre-tax salary per year to get the nest egg you need (roughly 15 times earnings at retirement) by age 65. But if you start at age 45, you need to save 18 percent of your salary (again, assuming you start out with six months' of salary saved). If you start at age 50, you need to save 28 percent of your salary. And if you start at age 55, you need to save nearly 50 percent of your gross salary to get where you need to be.
In other words, if you start with a sensible plan at a young age, you can get to your savings goal without breaking a sweat. If you wait until you are middle aged, it takes some serious doing. If you wait until you are a silver fox, you're required to do some heavy lifting indeed. If you assume the stock market has passed its glory days, you need to save even more.
The point is simple, as most vital points are: You need to start today, right now, this second, to save in a prudent way.
Now, if you will definitely get Social Security or if you have an annuity, things are not as Draconian. But the point is still vividly powerful. Let the magic of time and compounding do the heavy lifting. And, as Jim Bellows, a true genius who used to be my editor years ago, often said, "Start at once and do the best you can."
Stein is, by far, going to be the best.
Just good ol' fashioned "Common Sense."
I wonder: when did most FReepers start getting serious about investing for retirement? What basic investing plans are FReepers following?
I suggest you post this during the day when more people are here. I would be interested as well to see the responses.
I thought about that. Unfortunately, I'm nowhere near a computer during the day.
It's not an excuse but sometimes it's hard to get "serious" about saving & investing when you are working to support a family.
I suppose I got serious in the early 80s and real serious in the 90s, rode the tech boom all through the 90s and retired in 1999 at age 54.
Following the standard advice of the "experts" I put my money in "safer" investments after retirement and not through any great knowledge of my own about the coming bust in tech stocks.
The timing of that move was fortunate. I am fortunate to be living in the greatest country on earth.
I am now 60 years old and enjoy my 12 grand children and a week ago my very first great grand child.
Marked for later reading. Thanks for finding this.
Congratulations on your wise financial decisions, but more importantly on your grandchildren and new great-grandchild.
You hit on one of the biggest problems facing younger families, especially single-income families. It's difficult to find any extra income to save and invest, when bills and obligations take almost all the income you have.
Our biggest steps forward have been when we finally dug ourselves out from beneath a heavy burden of stupid consumer debt, and when we took advantage of company retirement plans and their generous matches.
I'd like to win just SOME of his money.
That show would have been a blast to be a contestant--even if only to be humiliated by the genius himself.
I have been doing the employer sponsored 401k since day 1, socking away 10% and getting the employer match. The expenses are more than I would like, but it's doing pretty well. Assuming (!) that nothing blows the system up, my wife and I will do OK.
It's hard to convince a 25-year-old that they need to save for retirement, but you need to do so. Come to think of it, we might need to re-allocate the kid's allowance. Right now it is $1 for savings, $1 for church, and $2 for what she wants. Maybe it should be $1.75 for what she wants and $0.25 for retirement. That would get the lesson started real early.
"What basic investing plans are FReepers following?"
Lottery tickets, and the 7th race at Belmont....
The two best times to plant a tree are 15 years ago and today.
Congratulations, fifty four is a pretty early retirement in my book. Great if you can do it, but there is a lot more to be said about it. So....and don't think I'm prying, I'm not, and I'm older to boot, and still working. I'm just interested in full disclosure so to speak, in the interest of financial well being.
Question one, did you have more than a "saving and investing" plan. IOW a retirement from company, govt, state, etc. other than Social Security, which you cannot even draw yet unless you are disabled.
Question two, what did you consider an adequate lump sum for your retirement? Not what you have necessarily but what was the number you were shooting for that triggered your desire to retire. what thought went into the choice of that particular lump sum?
I'm assuming that your now safe investments are continuing to grow, perhaps at somewhat reduced rate from the glory days of the 90's or are you in a draw down at a controlled rate based on actuarial numbers. If in draw down what age did you pick as the one to consider when you run out of dough?
Or as I might assume are you now in a position to care not only for you, your children, but also for your Grandchildren? Or is that not one of the criteria? Not after numbers, just your opinion on your situation.
You retired at the peak of a good market and made the right moves. In the ensuing years and considering the market only, I'm betting there have been far fewer early retirees merely on the fact that investment portfolios shrunk considerably. In my case approximately 25% a number which has recovered but the loss was not so much financial but the time lost while the market was recovering.
The last question might be related to the above paragraph, were you so safe in your post retirement investment decisions, that you ended up making money during the market downturn because those investments at least provided income while those in the equity were losing money?
So many questions, and if you don't feel like answering, I'll understand.
Omission fix next to last paragraph...those in the equity 'market' were losing money?
bump for later
You have mail.
My parents gave me $1,000 when I was 23 (in 1993) with the stipulation that I open an IRA with it. That's when I started reading about the importance of investing. Since then I've always tried to max out my IRAs or (when available) the company's 401(k) plan.
I took some big hits during the tech crash, but stayed in the market. My investing was also derailed due to 1.5 years of un/under-employment (tech employer closed Oct. 2001). Back on track since re-employment April 2003.
Ben Stein Ping! Tell me if you want on.
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