Retirement savings success
Ask a Vanguard investor about what it takes to be successful at saving for retirement, and he or she would probably tell you to start saving early, save as much as you can, invest in a low-cost diversified portfolio, and stick with your plan through thick and thin.
This is sound advice. But something that caught my eye recently was an article from a financial planner writing about the “9 factors that affect when you retire.” As he points out, it’s not only “the basics” that influence retirement incomes. So do factors such as when you have children, your level of education and financial literacy, and your psychological makeup.
It’s a good reminder that retirement success is a holistic concept. It’s not just about savings rates and portfolio allocations.
Notes:
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- Diversification does not ensure a profit or protect against a loss in a declining market.
Yes, those factors help in building success, but market performance, fraud, questionable practices by investment firms and our own governments actions seem to be having a greater effect of our future retirement success.
The article, “9 Factors That Affect When You Retire,” has some good ideas but also a questionable idea: the author thinks it is advantageous to “finish having kids” in your 20s so that you can pay for their college when you are middle aged, and then you can save a lot of money for retirement in your remaining worklife. Other things being equal, however, I think it is more financially sound to delay childbearing. A married couple without kids can then get a better start on saving for retirement while they are still young, and their money has more time to grow. Money that they save later, when they are around 50+, or even 45+, is going to have relatively little time to grow, compared with money that they could have saved in their 20s and 30s.
I agree with the comments on saving, diversifing, starting early. Starting early is the most important one. There is not substitute for the “Time Value of Money”. I would also add, get educated on the subject of Personal Finance. You don’t need to become an expert but at least know the basics and know when not to fall for a scam. I opened an IRA in 1984 and a 401K in 1988 and I have no regrets. Since 1986 I have read more than 115 books on Personal Finance. I happpen to like the subject a lot of people would rather watch paint dry than study Personal Finance.