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7 Tips To Nurture Your Nest Egg


There's nothing magical about nurturing your nest egg; it takes common sense and resolve. The magic is in the results.

Smart financial planning doesn't have to be complicated or oppressive. In fact, it can be liberating. But it does have to happen if you expect your retirement years-however near or far-to be all that they can be. Obviously, the earlier you get started the better.

Your health and your relationships are the real keys to enjoying life. But financial freedom is critical too. For most people, how late in life they're willing to work is the single biggest planning variable. However, building a suitable nest egg isn't just about working longer. Here are some key considerations adapted from my book, The Power Years: A User's Guide To The Rest Of Your Life:

Don't Count on Government or Your Employer

When the first Social Security check was cut to Ida May Fuller in the 1930s, no one knew what a great deal it would turn out to be for her generation. She had paid just $24.75 in Social Security taxes in her working years. She lived to be 100 and collected $22,889 in lifetime benefits. In her day, there were 42 workers for each beneficiary. The nation could easily afford to pay at such lush levels. There are today just 3.4 workers per beneficiary and by 2050 the worker-to-retiree ratio will be down to 2-to-1. Do the math. It isn't pretty. Private pensions face the same demographic tidal wave. While the most recent data on pensions suggests that shortfalls are being repaired, in the long run failing pensions almost certainly will overwhelm the Pension Benefit Guaranty Corporation, which insures private pensions and likely will have to cut its guarantees. You need to take charge of your savings plan.

Spend Less

I harp on this a lot because it's really basic and anyone can do it. You have a great deal of control over your expenses. You can choose to eat out or eat in or set the thermostat at sixty-six or seventy-two. A few weeks ago I asked Minyanville readers to chime in with some of their money-saving ideas. One e-mail suggested squeezing the last bit of toothpaste out of the tube and using a bar of soap until it disappears. Go ahead and laugh. But this kind of thrift is not to be confused with being cheap. No one gets hurt, and if you extend this thinking to all parts of your life you may find yourself saving thousands of dollars a year.

Invest in Your Future

Every pay period, write a check to yourself and put it someplace you won't touch. Just as the amount of junk you save in your attic expands to the size of the attic, your bills expand to consume all of your available income. Pay yourself first, and your spending will adjust. Promise.

Pay Off Credit Cards

Thirty-five years ago, Americans carried an average of three credit cards and owed $127 million on them. Today, Americans carry an average of four credit cards and owe $2 trillion. Some 14% carry more than 10 credit cards, and one in seven has a balance equal to at least half of their available credit, according to a new Experian study. Even if you have a large income, it's easy to let your credit-card debt get the better of you. One or two cards is really all you need. Consolidate your card debt with a low interest rate and commit 5% of your pre-tax income to paying off the balance.

Pay Down Your Mortgage

Debt isn't always a bad thing. The home mortgage popularized at the turn of the 20th century has done more to foster household wealth than mutual funds, certificates of deposit, interest-bearing checking accounts, lRAs, and 401(k)s combined. But you don't have to carry that debt forever-or even for the full term. With home appreciation almost certain to slow in coming years, it's important to shed your mortgage debt as quickly as is practical. Add two extra mortgage payments each year and you'll retire a 30-year mortgage in 15 years.

Be Clear About Your Potential for Inheritance

Boomers stand to inherit $25 trillion over the next 20 years, but just 10% of boomers will receive a whopping 90% of that wealth. If your parents have financial troubles or just live a long time, it's likely that you won't receive an inheritance.

Invest for Growth

Stocks are your best bet; on average they return 7% a year after inflation. You should have a mix of large and small companies, some that pay dividends and some that don't, and some international stocks. Exchange Traded Funds can be a good alternative; these are baskets of stocks that are priced continuously and trade on a stock exchange. Regular mutual funds (I lean toward low-cost index funds) are a great option too. Invest through a 401(k) or other tax advantaged account when possible-at least to the limit of any company match. But keep some bonds and cash on hand for stability. They become increasingly important as you get closer to the point at which you'll be taking distributions from your accounts.

There's nothing magical about nurturing your nest egg; it takes common sense and resolve. The magic is in the results.
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