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Basic Rules of Retirement

In this holiday shortened week I thought I would write a short post on the basic rules of retirement. If you follow these simple rules, it will be difficult for you not to succeed in achieving your retirement goals.

After I jotted down a few points for this post, I remembered a list referred to as “The 21 Basic Rules of Retirement” prepared by Ben Stein and Phil Demuth in their 2005 book Yes, You Can Still Retire Comfortably!: The Baby-Boom Retirement Crisis and How to Beat It. I agree with all 21 of their rules but some rules are intuitive.

Using Stein and Demuth’s list of 21 rules as a guide and adding a few of my own, the following 12 rules are most important to keep in mind for a successful retirement.

1. Maximize your abilities through self-discipline and the ability to get along with others.
2. Acquire work skills that are in demand so that you will be consistently employed.
3. Always have a reserve of cash on hand (at least 6-months living expenses) outside of your retirement accounts so that you don’t have to dig into your retirement savings in the event you become temporarily un-employed.
4. Keep your debt level as low as possible. The more debt you have the harder it is to save.
5. Start your savings plan as early as possible. You should get your savings rate up to 15% of your annual income as soon as you can. The first step to being a good investor is being a disciplined saver.
6. Plan far ahead for retirement, and then stick to your plan.
7. Select an age and risk appropriate equity allocation and maintain the discipline to stick with it regardless of equity market movements. Re-balance your assets periodically or as the markets dictate.
8. Planning for your retirement is more important than providing your children a lavish lifestyle. When your children complain, tell them it is for their own good. They will appreciate it later because they will not have to pay for your care in your old age. As a side note: One of the best things you can do for your children is to teach them to respect money. If I had to pick one thing my parents taught me while growing up which made the biggest positive impact on my adult life, it was teaching me what it means to earn a dollar. I had to do chores around the house to get an allowance and I quickly learned that money does not grow on trees.
9. Make a plan with a reliable financial advisor. Be sure to use an objective advisor whose only compensation is your fee. These “fee only” type planners are not that easy to find. One place you can find one is through the Garrett Planning Network. Garrett financial planners work only on an hourly as-needed basis.
10. Make savings and financial stability more important than showing off and being cool. This is a big problem with a large swath of Americans. It is a lot better to actually be financially independent than to just look like you are by buying fancier houses, cars, and computers than are necessary. I believe it was the financial planning guru Dave Ramsey who said “If you will live for 10 years the way everyone you know would never consider living, you will be able to live the rest of your life the way everyone you know will only be able to dream of living.” There is a lot of truth to this statement.
11. When investing, don’t try to hit home runs; it is better to go for walks, singles, and the occasional double. Adopt a straight forward investment philosophy that focuses on the historical advantages of investing in common stocks but balances it with a fixed income allocation. Also resist the urge to buy investment “fads.”
12. The last thing I would keep in mind is that you don’t want to grow old and be poor. Despite what anyone says, the government will not be able to take care of you the way you would like in your old age.

A lot of what I have written about recently is more applicable to younger investors. My next few blog posts will discuss “Retirement Income Withdrawal Strategies.”

Have a great holiday.

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