Last week we looked at research from Boston College that showed 50% of near retirees (baby boomers) are projected to have a lower standard of living in retirement due to inadequate income from social security, pensions, and savings. This week we look at a new book by William Bernstein titled “If You Can: How Millennials Can Get Rich Slowly”. It is available for 99 cents at Amazon.com and (sometimes) for free on his website http://efficientfrontier.com/ef/0adhoc/2books.htm If you can’t download it for free, this short book is a bargain at less than a dollar!
Dr. Bernstein’s main prescriptions for millennials’ retirement success are:
• Control your spending
• Pay off debt
• Have a 6 month emergency fund
• Save 15% of your income from age 25 to 65
• One only needs to use 3 index funds in their 401k & Roth IRA
Dr. Bernstein lists five hurdles that keep any investor from reaching his or her retirement savings goal. I would like to mention two of them since controlling our behavior is the key to overcoming these hurdles.
Hurdle Number One: Even if you can invest like Warren Buffett, if you can’t save, you’ll die poor. Dr. Bernstein is correct that people who don’t accumulate sufficient assets to retire comfortably spend too much. It’s simple arithmetic: If you spend everything that you earn there will be nothing left for savings and investing. It typically takes two to three decades of steady investing to accumulate sufficient assets to provide income for retirement. Excessive spending for a decade or two, before the light comes on at 50 or so, virtually guarantees a lower material lifestyle in retirement.
Hurdle Number Four: We have met the enemy and he is us. Our behavior is the most significant hurdle to financial security. Human nature is to think short-term, which was necessary for pre-historic man to survive in an environment where predators were looking at him as an easy meal. We now live in a world where long-term thinking (planning) is the key to survival over time. This means patiently living below our means, saving, investing prudently, and insuring our life, health, cars, and homes.
At Vestory we are committed to financial education and helping people get their financial lives right. One of our free services is advising people how to invest in their retirement plans (401k, 403b, 457, etc.). Our recommendations for several company plans are at 401411.com. If your plan is not on the site, please use this form to send it in for analysis.