Saving for retirement? Here’s some tips

First, forget “saving.” What you need to do be doing is investing.

And that investing should not just include 401k plans, IRAs or other traditional retirement vehicles. You need a diverse mix of types of investments and yes savings.

Regardless, always be sure to capture any employer matches to your savings – and, if available discounts through a employee stock purchase plan. Pros and cons yes, but still worth a part of your portfolio.

By the time you enter retirement you should have:

  • Qualified retirement accounts such as 401k and IRAs with a mix of pre-tax and after tax accounts, such as Roth accounts or, if available after-tax 401k contributions. The idea is to construct some tax-free retirement income. HOWEVER, consider the amount you can save. Let’s say if you save pre-tax you can save 10% of income, but because of the impact on take home pay, you can only save 8% on an after-tax income. Building up your account when younger may be the way to go.
  • Brokerage account investments allow for both short and long-term flexibility when it comes to investments and the use of your funds. [No required minimum distributions – RMDs]. Including dividend paying stocks will help create an income stream.
  • Bonds to generate interest income – in the form of bond mutual funds. If your total income is sufficient consider municipal bond funds for tax-free income.
  • Cash saving accounts for emergencies, contingencies, to smooth over market dips

You don’t have to be wealthy to do all this.

The amount of money is relative to ones lifelong income experience and lifestyle. If you earned $50,000 a year in the years leading to retirement, aim to generate that amount at retirement. You have forty years plus to reach your goals.

Keep in mind that Social Security will help. For example, for a person earning $50,000, at age 67 the annual benefit is about $18,144. (plus a 50% spousal benefit, if applicable).


  1. You start by saying: “… First, forget “saving.” What you need to do be doing is investing. …”

    Actually, no. You should start by saying: “First, forget saving AND investing. What you need to be focused on is spending.”

    Most fail to save because they have spent it all. The savings rate isn’t too low. The investments aren’t mis-allocated. The spending rate is simply too high – and there is no savings, or not enough savings.

    A household can control their spending. Ideally, people spend less than take home pay. Controlling spending means considering both income and spend and their relationship. People can improve their retirement preparation by improving their spending rate (leaving more money for saving, and ultimately investing), by managing spend at the same level whenever income increases.

    Commit to that now, today, to allocate some/all increases in income to saving (pay yourself first, use employer-sponsored retirement savings pland, etc.) and you have a concept called Save More Tomorrow. See:

    Generally speaking, if you are reading this blog post, you are in the same boat as I am – so, leave the investing to the professionals or the market (indices).


  2. Isn’t also true that that over the last 10 years 100% of the passive S&P500 index funds failed to beat the S&P 500? They matched or were slightly behind the S&P index.
    Did your advisor pay for your insight or at least reduce his fee?


    1. Absolutely true that passive S&P 500 Index funds trailed the actual S&P 500 index. It’s called fees. Sometimes there is tracking error. Motley Fool looks at three of the funds and notes that: “… There are negligible differences between the performances of the S&P 500 index and each of these three funds that track it. The S&P 500 outperformed each fund slightly, as would be expected when accounting for each fund’s expense ratio. …”


  3. Investing has become inexpensive compared to years past and the index funds are the reason. If a body will only buy a fund and stay hands off over the years they will be all right. The problem comes with trying to time the market. Running for the exit when stocks go down kills a lot of returns.

    Also staying away from the hucksters who peddle indexed annuities and front loaded funds is a good way to hold onto your money.


  4. Most of my savings/retirement are in index funds, with about 20 percent in government bond funds. But the total is only about two years income. My home equity is about another two years income.

    My hope is they will at least keep up with inflation. Tinkering with the mix would likely only increase, or decrease the total by less than a thousand a year. Luckily, like yourself, I have a pension which allows me to add to savings annually instead of using the interest (or principal), for living expenses.

    Barring an economic or health crisis, my heirs will reap the rewards, or suffer the failings, of my investment acumen.


    1. I retired 1/10 since then I have taken eight RMDs and my current 401k balance is over 50% higher than on the day I retired and that’s with 40% bond funds.


  5. By the fact that they have sought out this blog, your readers may find this advice useful. At the same time, you should realize that for the majority (vast), of Americans, investing for profit/growth/even inflation protection, is a crapshoot. Many might as well stick their money under a matress.

    Some will invariably try to beat the system and end up with less than they started.

    Good news; the average saving rate has increased in th last few years. Bad news; the average is very misleading.


    1. I disagree, except by way of their own ignorance or bad choices, steady investing in simple index funds will get people where they need to be over many years.


    2. If you are depending on bank savings accounts, you will not keep up with inflation, period. If you try to pick individual stocks, it is a crap shoot. Not every stock is an Apple or Microsoft. Remember that over the last 10 years 85% of the active funds failed to beat the S&P 500. Over 15 years, 92% failed to beat the S&P 500. Even if a fund manager matches the S&P 500 stock for stock, their fees eat away at their ROR or at least according to my advisor that is one of the reasons they can’t beat the S&P 500 or the Dow Jones.

      I had another learning using hindsight. When I was 18, I was told that a good investment mix was 60% stocks / 40% bonds. I now realize that if you were going to pick individual stocks, a 60/40 slit might be a good idea. IRAs and 401Ks really didn’t become available for most people until the late 1980’s. When I was 28, I never changed that mix thinking when I was enrolled into my 401K (I have always used index funds). This summer I rolled my 401K to an IRA. Talking with my advisor, I realized that the whole reason for bonds was some guaranteed income because bonds fluctuate less than stocks. I also realized that I do not get tax advantages from municipal bonds inside a IRA or 401K. Once I was vested in my pension, I had guaranteed income from my pension. Now that I am retired, I know exactly what my pension income is and I lived on that income alone for 3 years without a reduction in my standard of living or traveling. I pointed that out to my advisor and we both had light bulbs come on. I’ll be cutting back on my bond funds when the time seems right in my IRA. I also need to get some tax free bonds outside of my IRA. Now the bonds are strictly for tax planning purposes.


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