How to Have a Successful Retirement Savings Plan

Here's another good article on retirement planning courtesy of Marotta Asset Management. Today, they discuss the principles behind a successful retirement savings plan. Here goes:

The most successful way to save it is to automate your saving plan. Saved money makes money. And saved money making more money can make the difference between upper middle class and struggling middle class. Automate your savings, and you will automate growing richer.

A rich person is nothing but a poor person who has saved a lot of money. Save and invest as little as $100 a month for forty-eight years earning 9% and you can retire with a million dollars. Save and invest $1,000 a month for twenty-four years and you will have a million dollars. For $4,000 a month you can be a millionaire in twelve years. And for $10,000 a month you are there in six years.

The sooner you get started the less expensive it is to be a millionaire! The wisest financial decision you can make is to start – now! The key to getting started is simply getting started. Any amount is better than nothing.

A successful savings program must have the following five characteristics:

1. Savings must be regular. Every pay period, pay yourself first. Applying this one commitment will have a life changing cumulative effect.

2. Savings must be automatic. You won’t miss what you don’t see. Savings should be by default. We help our clients set up an automatic electronic funds transfer from their checking account into their investment account. The transfer is set up to take place shortly after their paycheck is deposited.

3. Savings must be adequate. While any amount is good to start with, your savings should ultimately increase to the level appropriate to meet your retirement goals. This amount should be reviewed and adjusted annually as your situation changes.

Whenever you get a raise, consider putting the greatest portion directly into increased savings. Increasing your savings when you get a raise is a lot easier than reducing your standard of living later.

If you don’t know what level of savings is adequate to meet your retirement goal, we are offering a Retirement Planning Seminar for those in the Charlottesville area on November 10th at our offices at the Boar’s Head. David John Marotta, AAMS will be the speaker. There is no charge, and a personal retirement projection will be computed for each attendee. Please call Bob Arms at (434) 973-0988 for date & time.

4. Savings must be diversified and balanced. Meeting your retirement goal is dependent on the safety and growth of your investments over long periods of time. Your investments should be diversified for safety while being invested for growth.

5. Savings must work for you. Your choice of investments should exclude those with high commissions and expense ratios. It may seem counter intuitive to pay for objective and unbiased financial advice, but fee-only financial planners have a fiduciary responsibility to act in your best interest. They are free of many of the conflicts of interest of those who sell commissioned based financial products.

By law, the SEC requires those involved in securities to disclose if their compensation is fee-only or commission based. This is often the fine print in financial documents. Ask specifically how someone is compensated before you accept his or her financial advice. And beware of the term "fee-based" which means that they charge a fee and are compensated from commissioned based sales.

If you are interested in finding a fee-only financial planner in your area, visit the National Association of Personal Financial Advisors at www.napfa.org.

Saving growth happens best when you aren’t paying attention. Set up your own savings program and put your plan for wealth accumulation on autopilot. Regular systematic savings is one of the seven principles to reaching your retirement goals.

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This is an excellent article -- I couldn't have said it better myself (which is why I ran this piece -- why re-create the wheel?). A few key quotes that I'd like to highlight one more time:

• "Every pay period, pay yourself first. You won’t miss what you don’t see."

• "The sooner you get started the less expensive it is to be a millionaire! The wisest financial decision you can make is to start – now! The key to getting started is simply getting started. Any amount is better than nothing."

• "Savings must be automatic. You won’t miss what you don’t see. Savings should be by default."

These are simple, basic, proven principles that, if applied, will make a tremendous, positive difference in your retirement savings. (And given the amount we all need to save for retirement, we need all the help we can get!)

For more tips on saving for retirement, see Best of Free Money Finance: Retirement Posts.

Comments

[Steve Mertz]

So an investor has followed the pearls of wisdom provided by Marotta and has $1-2 million in that 401-k. The next step is how are they going to provide a monthly income to that retiree...not enough firms focus on this aspect and it really makes or breaks the retiree based on what strategy they employ!