What are the basics of retirement success?

Add your answer

Have a question?

Get answers from our expert nerds.


chat

mail

Expert Answers

  • 4 people found this answer helpful

    CFP®, CFA San Rafael, CA

    Planning, prioritizing and persistence

    Planning

    Planning for the future can seem abstract, almost like fantasizing. Visualizing what retirement looks like for you is an important but often overlooked step. In addition to answering the questions, “When can I retire?” and, “Will I have enough money?” planning includes defining specific goals – what do you need and want in retirement? Make it real.

    Tracking expenses is a must, both to understand your basic needs and to make sure your money is spent where it matters most. Balancing wants with available resources inevitably requires tradeoffs.

    Prioritizing

    This is where prioritizing comes in. When you have established the importance of savings and understand the need for additional income (beyond Social Security) it becomes easier to make tradeoffs because you know what is most valuable and necessary for a more secure future. By prioritizing, you get in touch with your values. These are really your beacons when it comes to decisions about how to spend your money and allocate resources for retirement.

    You could simply forego dining out a few times a month in order to save more for retirement. Or the tradeoff may involve a larger purchase – longterm care insurance – in lieu of that ski boat. It really depends on your values and clarifying the difference between wants and needs.

    Persistence

    Persistence is where the rubber meets the road. Retirement is not a destination, but a process that depends on a commitment to living a financially sustainable life. That means spending less than you earn. The sooner you start, the better. But no matter when you start, it is vital that you do. People who haven’t started tend to ask, “What’s the use? I’ll have to work until I die.” Beginning with the basic steps will help to define your needs and allow you to direct your money in the ways that matter. Remember that even small changes can make a world of difference. Persistence pays off.

    Planning identifies your needs and values. You create a compelling vision of what retirement might be like, one that motivates you to bring it to fruition. By tracking spending, you prioritize putting your money where it matters most. Aligning your spending with your values is as close as you get to money “buying happiness.”

    Persistence keeps you on task. You periodically monitor your progress and make adjustments while continuing to live within your means. Small adjustments can have a profound impact on your future. Take these actions and keep at it. Result: retirement success!


    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 501 views
  • 4 people found this answer helpful

    CPWA Berkeley, CA

    The most important retirement planning task is calculating where your income comes from when you retire. This probably seems completely obvious, but it usually isn’t. Your portfolio needs to yield more every year to keep up with inflation.

    Inflation is the silent retirement killer. Your income needs to increase every year just to keep up with the rising cost of living. For example, look at how much medical care services costs increase, last year rising 3.7%, according to the Bureau of Labor Statistics.

    So it is not enough to look at your portfolio and see if it produces enough income this year alone. It needs to continue to grow and produce more income for each subsequent year. If it doesn’t, your buying power and lifestyle evaporate.

    Create a cash flow analysis beginning with your income gap (total expenses minus pension and Social Security) in the first year and then project the income gap into the future based on a reasonable rate of inflation. In the last 30 years, factoring in a 3.5% average inflation increase seemed to be enough. But we like to use 4% as a plug number just to be a little more conservative. An abbreviated retirement income analysis might look like this:



    Year
    Cost of Living
    Pension (2% COLA)
    Social Security
    GAP

    annualized increase
    1 (1983)

    80,000

    30,000
    12,627
    37,373

    5 (1988)
    95,020
    33,122
    14,799
    47,099
    4.73%
    10 (1993)
    112,691
    36,570
    18,306
    57,815
    4.46%
    20 (2003)
    144,49844,578
    23,417
    76,503
    3.65%
    30 (2013
    184,412
    54,341
    30,396
    99,675
    3.32%


    Here are the numbers for a hypothetical retiree in 1983. You can see years one, five, 10, 20 and 30  with each year’s inflation increase, a pension with a fixed 2% cost of living adjustment, Social Security income, and the gap that savings needs to fill for each year.

    On the far right, we have the average annualized income increase (from the first year of retirement) required to fill the gap. Now compare the cost of living in year one to year 30. You need $184,000 to buy what $80,000 bought in that very first year.

    Your portfolio must produce more income every single year in retirement just to keep up. This means its average growth rate must at least equal your withdrawals plus the inflation factor (the last column in this chart) or you will risk running out of money.

    Let’s say you designate your first 3% to 4% of returns to continuous portfolio renewal so that your future self has the same buying power as your current self and that you withdraw 4% to 5% of your portfolio to meet current needs. Then you need 7% to 9% in average annual returns to just maintain your buying power – to buy THE VERY SAME STUFF!

    Obviously, the more you withdraw, the faster you deplete your portfolio. Before you permanently leave your job, ask yourself if you have enough assets that you can live on a small amount (4% to 5%) and leave the rest of your returns in the portfolio to grow and compound. If you are confident that this is so, you are ready to retire. If not, be patient and keep saving and investing as much as you can.

    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 387 views
  • 3 people found this answer helpful

    CRPC Palo Alto, CA

    For a successful retirement there are a few primary ingredients.  

    The first is to save more than you spend.   The earlier you start saving the better.  Time is a very powerful tool for building wealth.  The first day of your first job you should start saving money for your retirement.  

    The next ingredient is to make your money grow while you are saving.  This is a more difficult task.  You need to be sure that you have a plan and avoid making big mistakes.  If you are not comfortable with making the financial decisions you should consult an expert.  Don't look for shortcuts and be wary of get rich quick schemes.  Building wealth does not happen over night but loses can come quickly without careful planning and if you ignore the risks.

    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 377 views
  • 2 people found this answer helpful

    CFP® Simi Valley, CA

    Since this is a financial forum, I take it your question isn't about philosophy, but actually meeting your financial goals.  It's not rocket science.  The answer is simple, but not simplistic:

    There are three factors involved:

    • How much you invest
    • The return your investments achieve
    • How long you invest - the time factor.

    How much:  You have some control here; it can move up or down.

    The return:  You have less to little control here; it can move up or down.

    Time:  The one factor that ONLY goes DOWN.

    Important point:  As time decreases, it puts pressure on the first two to achieve the same result!  This is why so many seniors and others who failed to plan fall for "hot" investment stories or "tips"!  Since time is slipping away and there's limits on how much they can invest, the only place left to go is to "chase returns"... and that story seems to always go bad.

    The key to financial success lies in #3:  Time.  The sooner you begin, the less pressure there is on the first two.

    It's about time.

    Jim


    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 1069 views
  • 1 person found this answer helpful

    CFA, CPA San Francisco, CA

    I have developed a mnemonic that we use to explain the planning and investment process to our clients ---- PRIM  for Planning, Research and Recommendations, Implementation, and Monitoring. 

    Planning is the critical first step, since every person's financial needs and goals, both while  working and in retirement, are different.  By identifying and crystalizing your objectives, you will have a much higher likelihood of developing a strategy to achieve them.

    Research and recommendations follow from the planning process.  It is important to educate yourself, seek answers to your questions, and end up at a point where you are at least comfortable and  hopefully excited about the future.

    Implementation is about putting your plans into action.  Making sure you are saving enough, managing spending, allocating your savings appropriately between tax-advantaged and taxable accounts, ensuring that your investments are well diversified ---- these are all important elements in your implementation plan.

    Monitoring is simply a way of saying that the planning, research, and implementation process is dynamic and needs to be continually monitored and periodically revisited.  Your needs and goals may change, and so too may your financial resources.  It is important to update your plans for changing circumstances, and to check that your implementation strategy is working as intended.

    You can manage each of these steps by yourself, or a financial advisor can direct you through the process while offering support and guidance along the way.

    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 382 views
  • 1 person found this answer helpful

    CFP®, MSFS San Luis Obispo, CA

    Principles of Retirement Success:

    --- Live within your means (before your retirement and after).

    --- Be Intentional - Do whatever you have to do in order to get where you want to be in life: tomorrow, next week, next year and in retirement.

    --- Get a GPS - There are many variables and conditions that you are probably not aware of in the personal finance landscape. As you move down the road to your retirement dreams, things will change adding even more variables.

    For that last bit (the GPS), I do strongly suggest you get a third-party professional to help - someone who has helped many others navigate these same waters (and try to avoid the person who is just trying to sell you products to make a living). Also, it is very hard to see your own reality on your own - you're just too closely involved. That third party perspective can save you from yourself.

    The sooner you can start to strategically think about your future, the better. The longer you let life hit you in the face, the less likely you are to enjoy a "successful" retirement (which BTW is something that you define, not somebody else).

    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 368 views
  • 1 person found this answer helpful

    CFP® Lakeville, MN

    I have found two things to be important in retirement success-

    1.  Figure out what you want to do with your time once you retire. Too many people focus solely on money when planning for retirement. The reality of it is you need to know how to budget things into your retirement plan to make sure you not only safe guard everything you have saved but more importantly commit to truly enjoying a fulfilling life after retirement.

    2.  Work with an advisor to create an income stage plan and commit to updating it annually. I create an income stage plan for all of my clients nearing or in retirement to make sure we know where to draw income from at what point. 


    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 173 views
  • 0 people found this answer helpful

    CFP® San Francisco, CA

    A successful retirement means more than making sure you will not outlive your funds.  Other issues include a psychological transition stage from work to leisure.  It is important to formulate how you will spend your free time.  Health issues need to be considered as well as health expenses.  Retirement like many other phases of life has a developmental aspect that it helps to be aware of.  Decisions in regard to where to live, how to pay for potential health and long term care expenses, estate planning issues are important.  Most important is to work on increasing your control and confidence about making decisions with the goal of being happier.  Typically this is a phase of life with the opportunity to give back or volunteer in your community.  If you enjoy working, it is also a chance to work again in some other area of interest.  

    Confidence that you will have sufficient financial resources to the end of life is necessary but not sufficient to retire successfully.  There are many ways to address the concern about living longer than if your funds will last.  Potential solutions include all or some of the following:  working longer or part time, maximizing your social security benefits, monitoring your spending more closely, changing your investment portfolio and many more possibilities.   Most importantly developing a retirement framework that provides you with a process to deal with changes, challenges and decisions as they arise in your life is the key to a successful retirement.  The only guarantee about any kind of planning is that life as well as your plan will need to change.  

    Having a process to address these changes that takes into account your life issues is the key to success.  Retirement needs to be part of your planning long before it actually happens (pre-retirement planning).  


    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 357 views
  • 0 people found this answer helpful

    CFP® Denver, CO

    The first step towards a successful retirement is starting with a financial plan.  A financial plan will not only help guide investment decisions but also will help with the one of biggest risks to a successful retirement, investor behavior.  Investing can be very emotional, especially with one's retirement nest egg. 

    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 343 views
  • 0 people found this answer helpful

    MSFS, MBA, CFP® Irvine, CA

    There is only ONE basic in my mind - create an income you cannot outlive.

    To do that, you have to be very judicious in your investment planning and budgeting. 

    So assess your income needs now and in the future.

    Assess your investments and income sources. Determine what type of an investment return you are going to need to hit your target.

    If you have a shortfall, then you may have to work longer or supplement your retirement income with a job.

    Look for methods of guaranteeing your income now and in the future. 

    This can be a very difficult task. So you may need some help. Make certain whoever you hire has a process for helping you solve the retirement gap.

    Hope this helps.

    Was this answer helpful?

    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
    • Embed ›
    • 415 views

User Answers

  • Roy says:

    I follow Dave Ramsey's plan pretty closely myself: 1) save 500-1000 starter emergency fund 2) list all debts smallest to largest regardless of interest rate, make minnimum payments on all debts and then throw anything you have available at the 1st debt, when thats paid off take all the money you were putting towards debt #1 and put it on debt #2 ALONG with that minimum payment. Continue until your debt is wiped out. 3) build EMERGENCY FUND of 3-6months of expenses, thats not PAY thats expenses. rent, food, gas, insurance etc. and NEVER TOUCH IT unless it is an emergency. A true emergency. No Christmas, not an iPhone, an emergency. 4) Put 15% of income into retirement account (if your company offers a 401(k) match, be sure to match that out) 5) save money for kids college accounts 6) pay off your house early 7) Build Wealth and GIVE!! charity is so important Without your age and knowing where you are in life, (kids, single/married, college) its hard to gague where you are on this scale. Simple tips: Don't borrow money Live beneath your means, if you make 30K a year live on 24K. Don't use credit cards to pay for things you can't afford. No vacations, tv's, or any of that stuff. Only use it for the points in these situations if you have the cash in hand and can pay it as soon as you get home with the new item. Be smart with your cash, It may be HARD but its not Complicated.

Add Video

Upload

Add Video

100%

Please wait while your file is being uploaded.

Add Video

How to Save for a Mortgage

Video Uploaded

Add Another I'm Done

Preview Video

*Disclaimer: We try to keep information accurate and up to date, however we cannot make warranties regarding the accuracy of our information. Please verify FDIC Insurance / NCUA Insurance status, credit card information, and interest rates during the application process. Please note that NerdWallet has financial relationships with some of the merchants mentioned here. NerdWallet may be compensated if consumers choose to utilize the links located throughout the content on this site and generate sales for the said merchant.

© Copyright 2014 NerdWallet, Inc. All Rights Reserved. Privacy Policy|Terms of Use
Nerdwallet, Inc. is a BBB Accredited Financial Service in San Francisco, CA