In 1900, retirement wasn’t a hot topic. Employers didn’t offer pensions, there was no Social Security, and the average life expectancy was 50. More than a century later, everything’s changed. More than 44 million people collect retirement benefits, and that number is expected to reach 72 million by 2030. And people are living much longer: Current estimates suggest that a million or more people now in their 40s can expect to live to be 100 or more.
If you’d like more direction than “save as much as you can,” you might use the rule of thumb that says you’ll ideally have savings equal to 25 times the amount you’ll need to withdraw from your accounts the first year you’re retired to supplement the Social Security and pension income you expect to receive.
You can start investing for retirement when you earn income for the first time. That’s when you can begin contributing to an individual retirement account (IRA). You can participate in retirement plans that your employers offer. If you work for yourself or own a small business, you can establish your own retirement plan. In fact, ideally, you’ll take advantage of several of these ways to accumulate retirement savings during your working life. These dedicated assets, in combination with your taxable investment accounts, Social Security, and an employer pension if you have one, are the foundation of a financially secure future.
What an investment costs you to buy and own has a major impact on the return—measured as change in value plus investment income. So you’ll want to consider those factors as you build and manage your long-term portfolio.
Random buying—a few stocks here, a bond there—rarely produces a strong enough return to provide the extra income you need in retirement. Jumping into what’s hot works the same way, since usually by the time an investment is hyped; it has started to cool off. And you don’t want to have paid a high price for an investment that ends up trading for less. It’s not that there’s a single right way to make money with your investments. There are several approaches that you can adapt to suit your needs, your resources, and the risks you’re willing to take. The key is that to be a successful investor, you need a sense of what you want to accomplish, and a strategy, or plan, for getting there.
Contributions from the book Guide to Understanding Life Insurance in this press release are used with permission from Light Bulb Press.