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Lessons of a Lifetime

Richard Quinn

MY RETIREMENT finances today are based on actions I took over six-plus decades, starting at age 18. Early on, I tried my hand at picking stocks and beating the market—to my regret. As time went on, I became more sensible.

Want to avoid my mistakes? Here are 10 tips based on my lifetime of managing money:

  • Start saving as soon as you have cash—it might be from shoveling snow, raking leaves or loose change—and never stop.
  • Time is your greatest ally.
  • Always have savings that aren’t earmarked for retirement—the proverbial emergency fund.
  • Save a portion of “found money.” That could be a year-end bonus, overtime pay, a small inheritance, a tax refund, even winnings from the Super Bowl pool—which, for me, was $175 this year.
  • Always increase your regular savings with every increase in income.
  • Invest in low-cost stock-index mutual funds of different types—large cap, small cap and so on. Don’t play the market with your retirement nest egg.
  • Include a small percentage in bond mutual funds as well. Reinvest the interest until you need the income. Increase your bond holdings when you get within a decade or so of retirement. I own municipal bond funds, but check your marginal tax bracket to see if they make sense for you.
  • If you have a 401(k) or similar employer plan available to you, always contribute enough to get the full employer match.
  • If possible, within your employer plan, fund both the traditional, tax-deductible 401(k) and the Roth 401(k). Ditto for your IRA, splitting your money between traditional and Roth accounts. That’ll give you greater flexibility in retirement to manage your tax bill.
  • Always have some money in a regular taxable investment account, so you have money you can access without paying the penalty owed on early retirement-account withdrawals.

I’ll add one more that’s a bit controversial and perhaps not for everyone: Take a small portion of your savings and buy a few high-quality dividend-paying stocks when you’re young, reinvest the dividends and let it ride. Down the road, that’ll give you a stream of income from the dividends.

At my urging, two of my grandsons, ages 15 and 19, just bought a few shares of my old employer, Public Service Enterprise Group (symbol: PEG), along with a few mutual funds. Public Service Enterprise Group has paid dividends for the past 117 years and today comprises about 17% of my portfolio. I wouldn’t suggest that relatively high percentage for anyone who depends on their portfolio for their living expenses. I have a misplaced loyalty—but I also have the safety net provided by a pension.

The dollar amount you have to save and invest isn’t important. It will always be relative to your income, but so will your living expenses in retirement. The important thing is to get started.

But saving for retirement is arguably the easy part. Up next: using the money in retirement. I see one basic question: Do you set your spending budget first and let that determine your annual withdrawals, or do you settle on a prudent amount to withdraw each year and then let that determine what’s available to spend? When working, your income determines your ability to spend. Should retirement be any different? 

A person living on a $60,000-a-year pension has no choice but to live within that amount. Similarly, a person using a percent withdrawal strategy should do the same.

Let’s say you have a $1.5 million nest egg. Your spending—including the sum needed for taxes—shouldn’t exceed $60,000 a year, assuming a 4% withdrawal rate. It doesn’t matter what you want to spend or what your budget says. Instead, your spending should be limited by what your accumulated investments can sustain.

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on X (Twitter) @QuinnsComments and check out his earlier articles.

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