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Retirement planning is a huge business but also an art. When you see advice in the papers or on the Internet, it usually comes from wisdom gained in the past. Which is good, but what if the future is different? So, while I am not an expert and this is not advice, I put together some thoughts about planning for retirement that might be useful to you.
What I did right
My stab at retirement planning wasn’t having a plan. I just sort of hopped on board whenever I saw an opportunity because it was clear there would be no pension.
I started early in saving for retirement. In the 1980s I got a job with Union Carbide and they offered to set us up with IRAs. It looked like a good deal and I was making lots of money so I ended up putting several thousand dollars into it before Union Carbide laid me off.
Fast forward to about 10 years ago when I put the IRA in a brokerage account and invested my thousands of dollars. I now have a tidy sum. Investing is better than saving. Even with the Great Recession I made lots of money simply by leaving it alone.
Meanwhile I went back to school and then got a job in human services. A few years into that I got into a 403(b), which is like a 401(k) for nonprofits. At the time I think the old rule applied that 403(b)s were set up to provide an annuity, so they paid a whole 5% or something, when you could do better in the markets.
When the rules changed to allow market investment, I was a happy camper. I kept saving into it all through the Great Recession, and this time I increased my contributions whenever I got a raise, which wasn’t often. The raise increases continued till I retired. The Agency stopped doing contributions to 403(b)s during the Great Recession but once things stabilized they were again generous.
I learned a little bit about mutual funds managing an inheritance from my grandfather. Dollar cost averaging works over the long term, folks. Keep putting into a defined-contribution plan whatever the economic weather, as long as you can. If you do it automatically, it isn’t even in your budget because you never see it. Those things really helped me and they could help you.
Things I could have done better
Here’s where having a clear vision about retirement planning might have helped.
That IRA I started was with a big bank for a long time and I thought I could only do savings instruments with it so I did long term CDs and got an OK rate. But I was getting left behind by the stock market. I can’t tell you how much, but judging from the way I gained from investing later on, A Lot is a good answer. I’d like to have that now but oh well.
Lesson #1 is keep your eyes open for opportunities to do better. That includes reading some financial articles and understanding what you can do with an IRA or 401(k) or 403(b) or other savings programs you may be in. And when you see an opportunity, don’t wait around. That could cost you thousands.
Ditto for the 403(b) situation. At the time our benefits and all human resources stuff was handled by the CEO’s secretary. She didn’t always keep up on the news. It took an outcry from some of us employees to get her to shop around and get us a plan administrator that would get us invested in mutual funds, and advice to help us choose wisely.
Lesson #2 is advocate for yourself when changes have to happen. After all, the employees in the plan include the people who are picking the plan, so they stand to gain too.
Lesson #3 is to use the free advisor even if you think you know what you’re doing. He’s got the point of view of a guy who went to school to understand this stuff. Go to his presentations and get up to speed. He can tell you what to consider.
Changing times for retirement planning
Over and over I’ve read recently that things are changing. Even the wise ones who read the tea leaves only have the past to inform them. Conditions are always somewhat different from the last time X happened, so you have to be on your toes.
While getting ready to retire, I started hearing about the possibility of a stock market crash and a recession. All kinds of things were going on that were scary. So I read up and assessed the situation, and decided to gradually back out of some stock fund I had probably too much of. I now have three years worth of survival money in a money market fund so that the big bills will get paid whatever happens.
That stock fund is still making money, by the way, but I’m safe if it crashes down 30% because I won’t have to cash it in and make that 30% loss real. I’ve already taken some loss because that safety money isn’t making much. But I am betting I would lose more if we hit a big air pocket and I have to make a real loss lower than where I sold out.
Notice I kept paying into these accounts and did not sell anything while I was not close to retirement. Steady nerves are needed, and you’ll come out OK. If not, then NOBODY is OK. New world, new rules.
Going forward, I will keep my money diversified in some funds that trade in stocks and some that trade in bonds. That’s old advice. But within that you can find opportunities to make more money than you would by playing it safe. After all, gain follows risk. You need to know how much risk you are comfortable with. That, too, can change with time. Keep reading up on business and current events. It helps you chart your course.
A word about costs
No matter what you do, you will have to pay somebody to help you buy, keep and sell securities and mutual funds or exchange-traded funds. On top of that, the funds have administrative costs too. All these costs are quoted in percents of the value of your holdings and they are tiny percents. However, there are a lot of them and they will add up to big money at some point. Like when you retire.
So you will want to watch costs of your investments. Some reputable companies, such as Vanguard and Fidelity Investments, offer funds at very reasonable costs that perform nicely. In fact, right now those two companies are trying to undercut one another with fees. It may be an opportunity for you.
Another way to trim costs is to look into exchange-traded funds that are like mutual funds you own. Converting to ETFs, as they’re called, can save you money on costs of investing. Read up on that and see if you would benefit.
So wherever the markets may go, pay attention to opportunities and costs, ride out the bumps, and keep saving into them. Don’t worry about being defensive if you aren’t going to need the money in the next 5 years or so. And try not to let that be your only savings. It costs you to take out of those accounts so you don’t do it casually. Have other savings for emergencies and fun.
And that’s about all I know right now. I never got a shot at a pension so I’m on a two-legged stool, as many of you are or will be. Your best bet is to pay attention to your investment-focused defined-benefit plans, pay off your big debts, and have some emergency funds standing by. Anything I missed? Comments?