Retirement

Retirement is a relatively new phenomenon in human history. As life expectancy has increased, many workers have become increasingly concerned with their health and finances in older age. With the passing of the Social Security Act by FDR in 1935, Americans have had income in old-age codified into law. For many, however, Social Security (OASDI) is insufficient for the retirement that they want. Or, they want to retire before 62. Social Security is able to provide a safety net for those in old age, but it is meant as a guaranteed minimum for retirement, used to supplement an income. This is the philosophy here at RewardBus.

Retirement is different for everybody (article here). For some, it is traveling/backpacking around the world. For others, it is bouncing between the beach and the mountains. For others, it is having the time/freedom to spend on charity work. For others, it is the ability to accept a job/hobby that wasn't possible when younger with all the responsibility. For others, it is fretting about rising healthcare costs. For others it may mean downsizing and moving close to family. No matter what the end-goal of retirement is, the process is the same. It generally breaks down into three major components:

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Accumulation

This is the majority of the effort in attaining retirement. 'Accumulation' refers to the time and effort spent in building a nest egg. When you 'save for a rainy day', this is referring to the act of accumulation. There is no special formula to accumulating wealth. The only tried and true method is to spend less than you earn. If you are unable to save money, the only real way to get on the right track is (you guessed it) either earn more or spend less. RewardBus has resources on turning your spare time into more money. RewardBus also has resources on budgeting and maintaining appropriate spending levels.

For those who are having difficulty accumulating, the key to breaking it is knowledge and awareness. RewardBus believes that attaining your goals is broken down into three steps (and RewardBus can only provide help with the third):

  1. What is the current situation?
  2. What do you need?
  3. How to best take your current situation and provide what you need?

The first step (#1) is assessing where you are:

  • What debts do you have?
  • What assets do you have?
  • What is your income?
  • What is your spending?

Without knowing this, it is impossible to make tailored recommendations for personal finance.

The second step (#2) is assessing the cost of what you want. This is very difficult for retirement, but RewardBus (and many other personal finance website) has resources on what an appropriate number for retirement is. This can apply to purchasing a home, saving for college, saving for a car or deciding how much money you can spend on travel.

The final step (where RewardBus's resources can best help) is to take your situation and find out how you can best attain your goals.

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Investing

When you start accumulating money, the next question is what to do with it? The number of options out there is intimidating and there are as many philosophies on investing as people in the world. Some prefer real estate. Others prefer bonds. Others prefer stocks. Still others prefer savings accounts. RewardBus espouses Modern Portfolio Theory, the effort to maximize your returns given a certain level of risk. The first step is to understand how risky you are. It is difficult to pin this down exactly, but ask yourself a few questions:

  • What am I saving for?
  • When will I need the money?
  • Am I comfortable losing 10% of my money? What about 25%? What about 100%?

RewardBus has resources on how to think about investing and risk as well as recommendations for companies that will suit your investing needs.

Drawdown

Closely related to investing is the need to eventually spend the money. If you never planned on spending the money, why are you saving it? For retirement, it is a particularly difficult problem. The most commonly quoted number is the "4% rule": withdrawing 4% of your nest egg indefinitely. FIRECalc displays how different drawdown strategies would have worked over time. In 94.8% of the 30-year spans since 1871, having a 75% stock/25% bond portfolio would still have money after withdrawing 4% a year. For those looking for a longer timeframe (for example, retiring young or a family history of old age), it would be more prudent to withdraw lower while the converse is also true. 

What Next?

Retirement is what you make of it. Define what you want and then work on defining both where you are and what you need. After this, hopefully RewardBus can help provide information and free resources to bridge the gap. Retirement is intimidating. Don't be scared.