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Never Run Out of Money…

January 7, 2011

Money-Guy 01-07-2011

Boy does it feel good to be back! The holidays always seem to throw off our schedule just a bit but, with the New Year, comes a re-vamp for the Money-Guy and getting back on schedule. Today’s show is a great one. There was a fantastic article in Consumer Reports’ Money Adviser titled “15 ways to never run out of money”. With an article heading like that, we had to do a Money-Guy show on it!

This article is great because it walks through 15 steps you can take to really be on top of your finances. What I especially appreciate about this article is that it separates the advice based on stages of life from “starting out” all the way to “retirement years”. As we go through the show, listen out for these key points:
Starting Out

  • Live Modestly – This is (or should be for our Money-Guy listeners) common sense by now. The idea here is to spend less than you make and live below your means. For any young individual just starting out or curious about investing or money management, they should ABSOLUTELY read The Wealth Barber.
  • Keep to a Budget – How can you know how much you have to fund your goals if you don’t have a grasp of where your money is going? The article states that “at its simplest, a budget involves splitting your expenses into have-to’s and want-to’s”.
  • Start Saving Early – The simple fact is that it is never too early to start saving. Employer matched retirement plans are always a great place to start!

The Middle Years

  • Diversify Your Holdings – Diversification and re-balancing can have a tremendous impact on your long-term performance. Don’t put “all of your eggs in one basket”.
  • Prioritize Retirement Over College – Your children can get student loans; you cannot get a retirement loan.

Pre-retirement

  • Stay in the Game – Trying to time the market is a suckers bet. Even if you get out at the right time, how do you know when to get back in? This is a common theme for investors who have missed out on the 2009 and 2010 rally.
  • Catch Up– Catch up contributions in both retirement accounts and IRAs can have a substantial affect on your retirement nest egg.
  • Pay Off Debt – Many times the psychological benefit from being debt-free in retirement far outweighs the potential foregone return in your investment accounts.
  • Budget for Health-Care Costs – A Fidelity study showed that a typical couple retiring in 2010 would incur $250,000 in health-care costs during their retirement years.
  • Time Your Payout – Deciding when to begin drawing Social Security can greatly affect how much retirement cash flow you have.

Retirement Years

  • Tread Carefully with Annuities – Make informed and educated decisions when determining whether an annuity product is appropriate for you. Remember that being contrarian is the name of the game. When annuities become the “hot dot” is usually the worst time to purchase one.
  • Follow the 4% Rule – Studies have shown 4% to be a sustainable withdrawal rate. Use this rule of thumb to determine 1) how much you should save for retirement or 2) how much you should (or should not) be drawing off of your investments in retirement.
  • Fill Up a Big Bucket – Retirement planning consists of setting aside money for short-term needs, medium-term needs, and long-term needs. Make sure each of those “buckets” is adequately filled.
  • Hedge Against Inflation– A dollar 20 years from now will not be able to buy the same amount of goods as a dollar today. When thinking about retirement, make sure you have investments that can outpace the eroding effects of inflation.
  • Work Longer– Every year you continue to produce income is one less year you mush be living off of withdrawals. Even 2 or 3 years can play a significant role in making sure that you don’t outlive your resources.

To close out the show, Brian jumps back to our last podcast, Certainly Uncertain, and addresses some of your comments. We received great feedback (both agreeing and disagreeing) on that episode, and we thank you so much for getting involved with the discussion!

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