Retirement Redefined By Daniel SolinBudgeting, Money, Saving | July 14, 2010 at 3:16 am
Recently I read the book ‘The Smartest Retirement Book You’ll Ever Read’ by Daniel R. Solin. This is probably different for other books. The personal finance books that I generally enjoy reading are the ones that add new insights to existing topics. This book too has some great points about retirement. Let’s explore the key points one by one.
1. Rethink Retirement Investment
Solin mentions it very bluntly that if you don’t protect your retirement investment against inflation, you will run out of money much soon than you anticipate. Inflation is the only thing that can ruin your retirement plans. It can depreciate the value of money. So, the money you are saving now will worth much less during your retirement.
So, what’s the solution?
You can keep certain amount of your investment in products like CD’s, treasury notes, savings accounts, bonds, and so on, where you money will grow according to the inflation.
2. Don’t Invest in Individual Stocks
Solin suggest people not to invest in individual stocks unless it’s just for fun. Individual stocks are too risky to include in your retirement portfolio. You don’t want it to be next Enron and drown all your money. Instead, make your investment a bit broader by investing in index funds, mutual funds, treasury bonds, and so on. For instance, you can put 33% of your money in international stocks,, 33% in stock indices, and remaining 33% in treasury or cash notes.
And you don’t need any financial consultant for such portfolio diversification, you can do it yourself. Make you portfolio as much less riskier as possible. An easy way to minimize risk it to purchase retirement funds.
Solin says investing in bonds is a good idea. But he reminds people that bonds aren’t completely riskless. They are comparatively less riskier than stocks, but not completely risk-free. Besides, if you are worried about inflation, you must not put your money in TIPS (Treasury Inflation Protected Securities), as they can be quite volatile, at times, and may under-perform in times of lower inflation.
4. Depositing Cash
If a bank or financial institution is not FDIC insured, don’t deposit your money into it. Also, make sure the money you deposit should not go beyond FDIC Insurance Cap ($25,000). So, where should you go?
You don’t have to go anywhere. You simply have to search for banks in your neighborhood that provides good rate of interest, is FDIC insured, and is safe.
If you go for annuity, select the one that offers fixed rate, not a flexible one, suggests Solin.
6. Mining Your Money
We generally withdraw money from our investments. However, we don’t usually take that amount into consideration while planning our retirement. Solin says, you must spare at least 2% – 4% of your savings for withdrawals. Besides, you must also have an emergency fund, so you don’t have to withdraw from your retirement fund.
He has mentioned many other points in his book which includes how to handle social security and pensions, early retirement, financial back-ups, other costs, state of your estate, and so on. I guess the book is pretty good source of retirement planning for beginners and experienced investors.