Christopher Holdheide knows from personal experience how tough it can be to handle your finances; he was inspired to become a financial services expert and found his personal finance blog Stumble Forward thanks to buying a time share he just couldn’t get rid of. Personal experience informs his perspective, and he was happy to share that perspective with us in an interview about how to build the right retirement plan.
What questions should we be asking ourselves as we build a retirement plan?
The first question to consider is how old are you right now, and when do you plan to retire? If you are 20 years old and plan to retire at 65, you roughly have 45 years till retirement. This means you have plenty of time, but this doesn’t necessarily mean you should wait.
The second question you should consider is, how much risk can you handle? The great thing about this is that we have things like asset allocation quizzes that can help us define how much risk we should take.
Finally, how much money will you need for retirement? Oftentimes we think we’ll only need the same amount of money we make in today’s dollars, but the reality is inflation is going up ever so slowly and you will more than likely need a lot more than you thought.
What should younger workers be anticipating with retirement plans? Will they ever retire at all?
The younger generations have every opportunity to retire like everyone else, but my suggestion is to start as soon as possible. I worked in financial services for four and a half years, and in that time I had only a small handful of people younger than 25 sign up for a retirement plan such as an IRA or Roth IRA.
The only reason younger generations will fail to retire is not because of the market returns but rather that they didn’t start saving for retirement soon enough and allow their money to compound over more years. I can’t tell you how many times when I worked in financial services I would show up at a client’s home and they were in their early 40s and they would say me, “I’m ready to start saving for retirement; what do I do now?”
It’s at this point I would have a long conversation with them and explain that it’s going to take a lot more money to hit their retirement goals because they only have 25 years till they plan on retiring.
What strategies make sense for retirement planning?
For most people who don’t want to spend a lot of time managing their retirement account, my suggestion is to use dollar cost averaging. This will spread the money you invest towards your retirement over a longer period of time and allow you to buy shares when prices are lower.
I also recommend going with asset allocations. With asset allocations, all you have to do is take a simple quiz and it will define exactly how you should be investing your money right now based on your current financial situation.
How often should we check our retirement plan, and why?
For people who are not comfortable doing everything themselves, I suggest only checking once or twice a year. Saving for retirement is a very slow process, and the last thing you want to do is make changes to your retirement every second something is going on in the market.
It’s these predetermined thoughts that usually get us in trouble with our finances and why we end up taking big losses in our retirement accounts when we have a market downturn. The most I check my retirement account is once every three months when I get more quarterly statements, and I typically do nothing more than review the statement and file it away.
What should be the guiding principles of any retirement strategy?
First off, don’t let emotion control what you do. When we see huge gains in the market, it can seem tempting to invest more, and this is just a bad idea. In most cases, you will be buying at high share prices and you will not see the big gains.
Which brings me to my second principle, and that is to keep things as simple as possible. What I mean by this is once you have your retirement account set up and you are investing on a regular monthly basis, don’t mess with it.
As long as you have your asset allocation set up properly, you should only ever have to check in on it here and there, but that’s about it. I think some people make things too complicated and try to game the market, and this is probably the worst strategy of all.
What do you wish everyone knew about retirement planning?
When it comes to retirement planning, I feel not enough people understand how the whole system works. When the markets are doing good, don’t start chasing the big gains because this is a sure way to lose big, and the same goes for pulling your money out when the markets are not doing so good.
When the markets take a nose dive, I like to look at it like everything is on sale and that I’m getting a good deal. If you pull all of your money out when the market goes down, you just guaranteed a loss. The problem is most people end up tying a lot emotion to their investments, and that is the worst thing you can do as an investor. Finally, that people understand that investing is a slow and long process, not a get-rich-quick thing.
