On page 66 of my book Real Money, which comes out in paperback on January 12, I talk about the incredible importance of saving for retirement – no matter what the environment.
It’s such a big issue, I want to take two days to talk about retirement savings. So we’ll do Part I today and Part II tomorrow.
From personal experience, I can tell you the best move to make is to start saving for retirement as early as possible - something my father touted again and again to me after I got my first steady paycheck in November, 1977, from The Tallahassee Democrat. (For the record, I covered homicides and sports, including Ted Bundy’s horrible crimes and the Florida State Seminoles first win, in the Tangerine Bowl). Sure enough, after Tallahassee, when I was going through tough times in the late 1970s, I was actually living in my car while I was a reporter living in Los Angeles for the now defunct Herald Examiner. Even so, I still managed to put $1,500 away for my retirement with the legendary Peter Lynch at Fidelity’s Magellan Fund. That money alone, put in consistently for multiple years, has compounded enough to provide a good retirement income for someone to live on comfortably for a half-dozen years after retirement.
Today, as 2009 dawns, saving for retirement is as important as ever, given the unstable nature of the job market and the economy. Anyone who knows me knows that I take the issue seriously; and that I’ve long advocated dividing investment money into two pools, one for retirement, and one for “mad money”.
It’s the first pool I want to focus on today and tomorrow – especially about early retirement (I’ll get to that in a moment).
In a nutshell, saving for retirement can be managed best with an age-specific mindset. For example, your twenties should focus on growth stocks, as you have plenty of time on your side to take a little more risk. In your thirties, people should pull the reins back a bit and focus more on more stable dividend stocks. In your 40s, bonds become a bigger portion of your portfolio, as capital preservation becomes a bigger priority.
I still believe the age-specific investment approach is your best option for retirement. But in this economy, even the best-laid plans may go out the window. Many people nearing retirement age have lost their jobs. A growing number of small business owners may find themselves closing shop as the economy worsens. Some people may simply be sick of the rat race and want to get out.
In those situations, early retirement might be your only option. What to do if you find yourself looking at an early retirement?