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How to Play Retirement Catch Up and Win

How to Play Retirement Catch Up and Win

Just about nobody is where they want to be in saving for retirement. The competition for dollars is fierce, with many struggling just to pay monthly bills, children’s college education, or any number of priorities. The stock market has been done too cooperative either, with its wild gyrations, and not just this year. Some financial gurus even debate whether the 2000s were a lost decade, as overall, returns have mostly disappointed. Many people look at their 401k statements and wonder just how golden the golden years will be? It’s a question keeping many up at night, deciding to delay retirement, or to modify “retirement” to include working, hopefully in a less stressful job that they like.

The pressure is on to play catch up. There’s a right way to do it and a way to make matters worse. Here’s what you need to know to get on the path to reclaiming your retirement dream.

Create a detailed catch-up plan.

Identify where you are financially now. What is your net worth, income, expenses and current savings? Next, determine the amount you need to save to live comfortably in retirement. Conventional wisdom says about 80% of what you do now, and depends on the number of years you have left before your retire, points out Derrick Kinney, a financial planner with Derrick Kinney & Associates. But that’s not necessarily true – it’s also about your circumstances and your priorities.

Get a handle on your budget.

Quit guessing. There are any number of online tools like say, Mint.com, that leave no excuses for not knowing how much money is coming in, going out, and where. See where you can make cuts so you’ll have more money to sock away. Set up automatic deposits to your savings account. Also increase your 401k and Roth contributions.

Deal with debt.

Eliminate as much debt as possible and lock in long-term debt at a low interest rate. Bill Martin, a certified financial planner with MassMutual even goes so far as to say to not borrow money. Drastic times call for drastic measures. Think twice about large purchases without first understanding the impact on your retirement plan. Do you really want to splurge on a vacation home, an expensive second car?

Avoid costly mistakes.

Sure, you’re trying to make up for dreams deferred, but don’t bet the farm on one hot investment like gold, or commodities. Following what has been hot is a fool’s game, warns Ben Gurwitz, a certified financial planner with Financial Life Advisors. Stick to a long-term plan when investing. Keep your cool. Do not change your risk tolerance in an effort to catch up.

While you don’t want to obsess about your portfolio, monitor it periodically, and rebalance when needed, perhaps once or twice a year. Do double check fees and commissions. Many people are paying 2% or more in total fees on investments. The easiest way to have more money is not to spend it. Make sure you are getting value for what you are paying.

Don’t be rash and go all cash. Cash is earning less than 1% and inflation is higher than that. The sidelines may seem like a good idea, but think again. You need to take some risk. Not investing some of your portfolio in growth investments can be a big mistake. The stock market can give you a stomach ache, but mostly it still is the champ when it comes to fighting inflation. Remember, if you retire at 65, you could easily have a good 20 years or more in retirement. You don’t want to outlive your money.

It’s bad enough to make critical mistakes when you’re behind in your savings goal and retirement is a decade or less away, but just as bad is the 20 and 30-somethings who are running scared from the stock market. The earlier you become disciplined about investing, meaning you can’t give in to every impulse, be it fear, or greed, the better off you will be. Your money has a longer time to compound and it can ride out the market’s ups and downs. Overall, you’ll likely be just fine, thank you very much. It’s easier to save 5% your entire life than 30% or more when you turn 50. The younger person who always saved 5% will have more money than the late saver.

You may feel behind, but like with the tortoise and the hare, slow and steady also wins the retirement race.

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anonymous   |     |   Comment #1
Your post reminds me of why my family calls me the "tortoise".  They used to make fun of me because I refused to take chances from day one.  Slow and steady was my goal.  Day one has long passed and it I had tried to be the "hare"  I think I would be sitting in quicksand about now.  Too many people get over eager and want to "make it fast" and they can end up losing everything! 

One point I would like to add is that due to the unemployment and bad economy we have now, many may end up having to support adult children with their retirement savings.  So be SURE you save even more than you think you will need if you have children.  They are not growing up in a world where even they can try to save in banks or credit unions and get good interest rates.  So they may depend upon their elderly parents to "save the day" for them.  So I suggest you save even more than you think you need.

However, I disagree with you about the "don't be rash and go all cash".  The only time in over 50 years I ever loss money was when I tried a mutual fund or stocks.  I still insist on going "all cash" because one can get more than 1% with a bit of hard work and research.  I am just grateful that the main years we had to save for retirement, we were allowed to get really great interest rates from CDs.  Those days may never return for the US so the young have to work harder at saving.

Enjoyed your article.  Thanks for writing it.
Anonymous   |     |   Comment #2
"Don't be rash and go all cash"??? My "cash" investments (CD's, MM's) have out-performed all of my other investments over the past ten years, if you don't count the increase in the value of my house over that time period (but I don't consider my house to be an "investment"). And chances are cash will outperform other investments over the next ten years. That's why I frequent your site. To learn where best to invest my money. Ignoring the infrequent article touting the stock market, you do a **** fine job.

The stock market is gambling, pure and simple. Consideration, chance, prize. Best reserved for play money, since you are at the mercy of the whimsy of others, hoping they'll pay a higher price for your stock than you did. Stock prices have nothing to do with the true value of a company, and dividends can be cut..Timing is everything, and unless you buy at the right moment and sell when you have a satisfactory profit, you can lose capital very quickly. And there's always the risk that some human thousands of miles away will utter a few words, which will have the effect of immediately reducing the value of almost every publicly traded company, as we found out this week. Who needs that? Unfortunately, it's been that way for years. I'm sure we all remember the headlines from the go-go 90's: "Stocks soar on benign inflation reports!"; "Stocks soar when Greenspan cuts rates!" "ABC company soars when layoffs are announced!" Wasn't too long ago that layoffs were considered to be a good thing, now they're considered a sign of weakness. I'm so confused! Which is it? Shouldn't stocks be soaring on low interest rates, layoffs, and benign inflation? Doesn't seem to be happening like it used to..

As someone who requires some consistency when I invest, and the ability to calculate risk based upon known factors and past performance, the stock market doesn't meet those requirements for me.

When you think about it, you have less control over the value of your capital in the stock market than you do by engaging in other forms of gambling. Take poker or blackjack for example, you are able to use some strategy, as opposed to relying on pure luck solely on the actions and words of others.

With cash, you know what you're return will be. So which is better: a guaranteed 1-3% gain, or the possibility of a 100% loss? You decide.
Anonymous   |     |   Comment #3
Anony #2:   Hallelujah!  Amen to that!  We tortoise know where we like to wander! 
pdxmale   |     |   Comment #4
it was just a few days ago that someone on this site questioned why I qould need 250K in a liquid position. I am averageing OVER 4% in RCA's, and am MORE than happy with the "effort" vs the reward. AND I HAVE YET TO LOSE A NICKEL ON A RCA.
Anonymous   |     |   Comment #5
When all the stockbrokers and media were touting stocks as returning

11%,I was content with my 7-10% on CDs.What is an RCA?
Anonymous   |     |   Comment #6
To #5 - RCA = Reward Checking Account.
Stewie   |     |   Comment #7
When I hear of RCA, I think of Nipper!

sam-i-am   |     |   Comment #8
When investing in stocks, does anyone really know what the heck they are buying?  For the most part, they are buying into corporate stupidity, management's inability to run their companies efficiently, outsourcing of jobs, and greed/corruption.

I say - put the cash away in FDIC accounts and invest in yourself - all the time and money wasted with the stock market could be spent making more money the old fashioned way - a second part time job or a small business on the side.
scottj   |     |   Comment #9
While not exciting my cash portfolio is up every year and I sleep great at night not worrying which way the market will go. Tough for people to go cash now but for those of us who have been laddering CDs for many years we are fairing this low rate cycle much better than others. But this enviorment has finally pushed me into the market slightly. My IRA was in a CD and when it matured a couple months ago I saw the new rate was going to be .4%, Was only about $60k but I closed and transfered to an IRA brokerage account and bought about 10k shares of BoA. Am only 50 and this is money I don't even think about and gotta figure in 10-20 years it will be higher than $6. Am down a couple thousand on it now which actually is helping me by making me remember why I like my CDs better than the market. Also not worried about when I will be able to retire, did that 2 years ago
rhetorical question
rhetorical question   |     |   Comment #10
but is the phaser still set on stun re 8 19 2010
Anonymous   |     |   Comment #11
Don't have to catch up.   Did all the right things --- now you get punished for having done the right things.  Not putting rertirement savings into the stock market casino!

Ben Bernanke and his merry band of FOMC thieves (in my opinion) has made sure that I will earn less interest on my safe FDIC insured deposits during retirement.   Already got burned in the stock market sometime around 1998 and again round 2001-2003.   Not going back there again.   Will do with less if necessary but not gonna gamble as our government would like savers and other senior savers  to do (again in my opinion).
Anonymous   |     |   Comment #12
Dear Ms. Nance-Nash,


>> The stock market has been done too cooperative either, with its wild

>> gyrations, and not just this year.

I am conversant with English.  However, Ms. Nance-Nash, I cannot decipher the meaning of the above sentence you wrote.  Do you care to rewrite the above sentence to make it meaningful?


>> Cash is earning less than 1% and inflation is higher

>> than that. The sidelines may seem like a good idea,

>> but think again. You need to take some risk.

No no no.  There is no need to take any risk.  You may have a choice to take risk, but surely there is no need.


>> Not investing some of your portfolio in

>> growth investments can be a big mistake.

Ms. Nance-Nash, there is no such thing as growth investment!  If there were to be something like a growth investment, something that only grows, does not shrink - ever, then I'm all for investing 100% of my portfolio in it.


>> Your money has a longer time to compound

>> and it can ride out the market’s ups and downs.

Are you advocating living long enough, and timing your death to coincide at the upswing of the stock market?  *smile*

Humbly Yours,

Anonymous   |     |   Comment #13
Dear Ms. Nance-Nash,

>> While you don’t want to obsess about your portfolio, monitor it periodically,

>> and rebalance when needed, perhaps once or twice a year. Do double check

>> fees and commissions. Many people are paying 2% or more in total fees on

>> investments. The easiest way to have more money is not to spend it.

I agree about the easiest way you've pointed out above.  However I must disagree about what you've written before it. Monitoring portfolio periodically, and rebalancing it does not appear all that easy when one compares it with setting a reminder for maturity date of a CD!  Don't you agree?


I have something to add actuully.  An easier way to have more money is, never to lose even a penny of your money by putting it at risk in the stock market.


Humbly Yours,


Anonymous   |     |   Comment #14
Dear Ms. Nance-Nash,

>> Bill Martin, a certified financial planner with MassMutual

>> even goes so far as to say to not borrow money.

Does this certified financial planner with MassMutual make some exceptions, like borrow money to help pay for education?  Borrow money to help pay for first car?  Borrow money to help pay for first home purchase?

If all this certified financial planner is advocating is not to borrow for a vacation home or second expensive car, then I have two questions: 

1) Do we need recommendation from a certified financial planner with MassMutual, for such a common-sense thing? 

2) Perhaps the people who are willing to borrow money to purchase a vacation home and/or second expensive car are already well-off and have secured their retirement before deciding to borrow money, and that the lenders who are willing to lend them for such purchases are deligent enought that they have reasonable confidence that the money will paid back with interest!  Should we give them the bebefit of the doubt?

Humbly Yours,

Anonymous   |     |   Comment #15
Ms. Nash:  "You don't want to outlive your money" is my favorite of all your statements.  Why not?  Isn't that what Welfare is all about?  And also if we could bring back my favorite Dr. Kevorkian, we could decide if we got too poor to join our loved ones who don't have to worry about money any more.  I think the people who are members of this forum already know how to handle their money and like myself, are on here trying to find the best places for our CDs.  If we were risk takers, we would be watching the stock market and not be on here.  However, although you are preaching to the choir, imo, maybe a newbie will pop in here and can use what you are stating so it never hurts to repeat the "what nots" and "what tos" to any one that is starting out. 

I was watching my favorite Suzie Ormon recently and she seems to agree with you from what she preached.  I never mine rehearing good financial info even if a couple of things are not my cup of tea. Thanks!
Anonymous   |     |   Comment #16
to 15 how rude take a hike  ms  nash is trying to provide valuable  insight if  you do not like it go join jerry pilsner on his site
Anonymous   |     |   Comment #18
to 17 etib em
Pablo Savin
Pablo Savin   |     |   Comment #19
Great comments, Cd's have been my friend, hate to work and lose money in the market. Been buying Cd's for twenty years. Never lost any money. Still averaging 4.5 percent. Hopefully rates will go up.
51hh   |     |   Comment #20
In the bull market of the 80s, everyone claimed that they are 100% in stocks/equities.  Now everybody here is claiming all they have is cash, RCAs, and CDs.  

Folks, please do/recommend everything in moderation.  If a young guy comes to this thread, how is he going to save enough money for retirement by putting all his savings in CDs??

The prudent approach is to realize that the stock market is unpredictable and often influenced by professionals.  Develop a strategy that will take  full advantage of the market; given that perspective.  And save enough for retirement; no more, no less (i.e., do not take unnecessary risks; just sufficient risks).

The all-cash approach may work for you as an individual and for your specific financial situation (time horizon/risk tolerance/etc.).  Just like the 100% equity approach, it is not for everyone!!!

Anonymous   |     |   Comment #22


How about giving a title:

"How to Play Retirement Catch Up and maybe Win, maybe Lose, or maybe Break Even" !!

What is scary is the maybe lose part.

Anonymous   |     |   Comment #23
As many previous comments suggest, Ms.Nance-Nash should consider her readership base before deriding an all cash portfolio. This common sell-side mantra from Wall Street ignores the cruel fact that cash has outperformed equities over the last 10 years in this country and in Japan for the last 20 years! While it is true the long-term return  of equites has outperformed most all asset classes, if one strips out the likely once in a lifetime equity bull market of the 80s and 90s, cash starts to look even more attractive as an asset class.
lou   |     |   Comment #24
One poster here claims to have received 7 to 10% on their CDs. I would imagine he/she is referring to CDs in the 1980's or 90's.  Another said he is averaging 4.5% on his CDs. Most of those CDs would have been bought at least 3 years ago. If I am wrong, I would appreciate hearing how these posters are able to achieve these rates.
Anonymous   |     |   Comment #25
lou, I don't believe you are wrong.

I started a CD ladder about 10 years ago, but as those CDs mature,  I see my interest income decreasing with each CD renewal.  Rates have gotten downright pitiful.  However, I will not let myself be forced into the "market" and gamble my life savings away.  If it comes down to it, I will spend the principal and at least have something to show for it rather than take a chance and see it vanish on Wall Street.
Anonymous   |     |   Comment #26
lou - #24,you are correct in that I was referring to the 80's,90's and up to

glxpass   |     |   Comment #27
From the author:

 "Don’t be rash and go all cash."

Heresy!  :)
Pablo Savin
Pablo Savin   |     |   Comment #28
To 24. The 4.5 return is because of the cd ladder We started 18 years ago. Still have many cd's at 5.6 percent not due until 2015. Mostly with capital one bank. Also by adding a little to the cd when it matures we have been able to keep the same amount of interest coming in, but it takes more cash to do . My friends call me the "cd ****"
heresy   |     |   Comment #29
emdtech   |     |   Comment #30
This may be an interesting article to some people, but I find it very light in content and advice. Why?

1.    If you did not start planning for retirement when you first started working, you will be behind the “eight ball” in potential retirement earnings. Time value of money is your friend if you start earlier in your career.

2.    You cannot base your earnings solely on one financial mechanism (i.e. Stocks, Bonds, CD’s, Insurance Instruments and Savings Vehicles). It requires “composite financial planning” – an activity that is usually set aside for later by most people.

3.    You cannot make up for lost ground by “wishing” it will change on its own. Active planning is paramount to a successful long term retirement nest egg. Portfolio balancing by re-deploying assets to better risk / reward scenarios is part of the process, even though it is painful at times.

4.    Do not base financial decision changes on emotion. This is very difficult process to adapt as most people do not want to face “defeat” on bad financial choices made in the past. Worse yet, they resort to point # 3.

5.    If you are unable to make hard decisions or do not have the financial acumen to invest your nest egg properly, get competent financial advice. Choose your “partner” wisely as you have to trust them to do the right thing.

I am not a financial planner or a registered security broker, just a private investor that has been through many recessions since the mid-70’s.  Investing requires a personal commitment from everyone who wants to be in a position to retire on their own terms. Otherwise, Walmart may be your future job in your retirement years.

I really enjoy many articles, comments and different perspectives from everyone on this site.

rhetorical question
rhetorical question   |     |   Comment #31
do people think they will get their point accross more or better if they use bold script or capitals?? I for one pass on all these  well meaning albeit misguided  personas
Anonymous   |     |   Comment #32
If my pention check is already typed out for Merryl Lynch IRA can I change my mind and invest in cds or IRA CDs?  I'm rethinking the risk of having someone I don't know making stock purchashes in my behalf.
Anonymous   |     |   Comment #33
#32 I have a mantra that "no one but ME decides what to do with our money".  I don't know why your pension funds are automatically put in with Merryl Lynch but you should make it known to them that you only want Merryl Lynch to put it in CDS "you" get to choose for yourself.  We did this with two other big well known institutions which sell brokered CDs and this way we can have total control of the funds at all times. When a CD matures, I just purchase another to replace it with.  However, now that CD rates are so low, you may not have much of a choice of decent rates but you will at least know what you got as a pension was not risked. 

I cannot believe that the people who handle it for you at ML are not going to put it in riskier investments.  See if they are letting you know exactly where your money is going before you give them permission to handle the funds for you, imo.  I like the two institutions I selected because all the control stays in our hands.  Best of luck to you on this very important decision.