I have just finished reading an excellent book written by Frank Armstrong and Paul Brown: Save Your Retirement--What to do if you haven't saved enough or if your investments were devastated. This book is written primarily for investors with less than 15 years to retirement. The authors selected Vanguard index funds for their portfolio illustrations. Below are a few of the book's valuable excerpts:
"The more you know the better you can plan."
"Just about everyone is unprepared to retire the way they want."
"You are going to need $1 million in assets for every $40,000 a year you will want to spend."
"It is conceivable that you are going to be living a third of your life with no paycheck coming in."
"Almost half of all workers saving for retirement say they have less than $25,000 in total savings and investments."
"Credit cards are a great convenience if used responsibly. But, they are a slow-acting poison for people who don't pay them off in full and on time every month."
"Paying off any outstanding credit card debt should be a priority before beginning an investment program."
"If you are not taking advantage of what IRAs have to offer, your retirement planning has a small--but significant--hole."
"Between age 25 and 65, you could save $200,000 (40 x $5,000) in the IRA. Assuming an average 8% return, that should grow to $1,295,282.59. You can double that amount if you also contribute to a spousal IRA."
"Many 401(k), 403(b), and 457 plans offer substandard and dirt-poor investment choices at outrageous total costs."
"At the very minimum, every individual should have the following instruments in place: Will; Living trust; Durable power of attorney; Durable power of attorney for health care; Guardian for minor children."
"Insurance companies pay obscenely high commissions to the insurance agents and financial planners who pitch annuities."
"The annuity contract looks a lot like the roach hotel: Once you are in, you don't get out."
"It's just about impossible to build a case for variable annuities that makes any economic sense."
"Most financial advisors assume a life expectancy of at least 95"
"Don't over-invest in company stock. That is a huge mistake, as we have seen with one after another major American companies simply vanishing without a trace."
"Over time, stocks have substantially outperformed every investment there is: bonds, cash, real estate, gold, and commodities--even taking the stock market disaster of 2008 into account."
"Use low-cost financial services companies such as Vanguard, Schwab and Fidelity, and discount brokers such as Scottrade and TD Ameritrade for your investments."
"We seem hard wired to spend whatever is in the paycheck and sometimes a little more. Set a savings goal and have that money automatically taken out of your paycheck."
"Even if you have the world's best investment advisor, you are still going to be broke if you don't contribute generously to your retirement accounts."
"Time is an investor's most valuable ally. Returns increase exponentially over time, which is as close to magic as most of us will ever see."
"Serial losers buy into one deal after another that sound too good to be true."
"Odds are, you made some mistakes getting to this point in your financial life, and going forward you can't afford to make many more."
"The IRS is a tough group. If you don't play by their rules, they don't just take their bat and go home, they beat you up with it."
"Temptation is everywhere. Advertisers create demand for junk, and the credit card companies enable our bad behavior."
"In our experience, almost everybody wishes that they had saved more and started earlier by the time they finally stop working."
"You probably don't want to withdraw more than 4% of your retirment savings in any given year, if you do, you run the very real risk of outliving your money."
"Eliminate all consumer debt because it will drown you in fees and interest charges."
"A good part of your equity holding should be in foreign-based stocks. We recommend putting as much as 50% of your stock holding in companies based outside of the U.S."
"If you are self-employed, you can have your own individual 401(k) plan. These are cheap and easy to establish. Just contact one of the major financial firms, such as Vanguard."
"You can stumble into retirement without a clue as to how you want to live, or you can plan to live out your dreams."
"Long Term Care comes in a bewildering variety of contracts, and even many competent life insurance salesmen have insufficient knowledge of the market to properly advise you."
"For a stress-free and enjoyable retirement, there is just no substitute for a generous portfolio at the beginning."
"Don't give up on the equity markets. They are still your best long-term hope of providing yourself with the growth you need to exceed inflation."
Health care costs are one of the biggest threats to retirees.."
"If withdrawal rates were stop lights, 0-4% would be green, 5% would be yellow, and anything above 5% would be red."
"If you haven't done so already, you ought to consolidate your retirement capital accounts in one institution that can provide a single statement."
"Make sure each account has the appropriate beneficiary designations, or Pay on Death (POD) arrangements."
"If you are withdrawing more than 4% a year from your retirement capital, now would be a good time to hunker down, control expenses, and/or consider reentering the work force."
"Pushing back your retirement date is not something that instantly comes to mind. However, it could be a very simple solution to your problem."
"When you boil everything down, you really only have two choices about what you can do with the money you are earning today: You can spend it, or save it for use in the future."
"Although it is possible to 'over-save' for retirement, the problem caused by doing so is a whole lot smaller than waking up one day in your 60s and realize you haven't saved enough."
"Long-term returns show that guaranteed investments track inflation closely, and are actually net losers on an after-tax basis."
"Assuming a modest 3% inflation rate, your real income will be cut by 46% in 20 years."
"One of the surest ways to to destroy wealth is to sell after the market is down."
"Determine your asset allocation based on as reasonable a worst-case scenario that you can tolerate, and then consider yourself committed to endure the ups and downs of the market."
"Accepting market risk is painless when stock markets are climbing ever higher, but it require intestinal fortitude during the inevitable market declines."
"Don't let your company's stock, or any other stock, make up more than 5% of your retirement portfolio. You will never get compensated for risk that could have been diversified away."
"Although it might seem like the only way to recover from a late start or another financial disaster, you try to outperform the worldwide market averages at your peril."
"As with most things in life, it is a good idea to hope for the best and plan for the worst."
"Call the people who hold your mortgage and simply ask whether it would be possible to refinance. Even a 1% drop in your interest rate could save you some serious money."
"Let us say right up front that we have not the slightest clue what the market will do in the short term."
"As long as you believe that the value of the world's economy will continue to grow, you should have confidence that the markets will recover."
"After you have identified the dream (or dreams) you want to fulfill, follow the STAR technique: Make it specific, time-bound, actionable, and relevant. It takes more than wishing to make dreams come true."
Frank uses many Vanguard funds in his personal and client portfolios, and Paul has the majority of his personal assets with the firm As you can tell, we think they are a good outfit."
"Stay the course, keep making your investments in your appropriate asset allocation plan, and increase them if your can."
"Entire new worlds can open up for you the day that work becomes optional. You can learn to fly, scuba dive, hang glide, sail, paint, meditate, windsurf, sky, ice skate--explore the world or your inner self--give back to the community."
Thank you Frank and Paul!
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