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3 Retirement Moves to Boost Your Savings

Like life, investing offers few certainties. That doesn’t mean we can throw up our hands and give up on retirement planning. Today we explore ways to stack the deck in your favor and retire comfortably…

3 Retirement Moves to Boost Your Savings
Photo by Meghan Holmes

It goes without saying that all of us want our retirement savings to provide a long-term and comfortable standard of living that outlasts our lives. That doesn’t fall short, leaving us to face tough choices.

That’s a reasonable desire.

How to get there is a different matter entirely. In this article, we’ll provide three key considerations that each have the potential to dramatically increase the odds of enjoying a comfortable retirement well into our golden years.

Let’s get started…

#1 ­– Focus more on the retirement plan, and less on rules

USA Today recently published an article listing a few misconceptions about saving for retirement. Two stood out:

The 4% rule guarantees you won't run out of money

It's enough to save 10% of your income for retirement

Let’s start at the top. Here’s how the article described the rule:

The 4% rule says seniors take 4% out of their retirement account during their first year after leaving the workforce. By sticking to this strategy and increasing withdrawals only to account for inflation, the theory was that their money would last for life.

While withdrawing 4% of your retirement savings this way and following the rule reads like it might make sense, the rule also seems arbitrary. With prices currently rising 7% year over year, who knows if a 4% withdrawal would even be enough in 2022?

There’s just no way to know what the future will hold now that the Federal Reserve has abandoned its 2% inflation target…

What would be enough to withdraw from savings each year going forward?

It’s an impossible question to answer! We can’t know with any certainty what we’ll need, what unexpected expenses might arise, or how much they’ll cost. You’ll need to withdraw as much money from your retirement savings as you must to meet your expenses. Obviously, the only way to absolutely ensure you always have enough is to have more than enough set aside.

Which leads us to the next misconception…

The “save 10% of your income” is one of those rules of thumb that everyone seems to have heard at some point, but no one’s quite certain where it came from. USA Today puts it like this:

Another rule of thumb many people traditionally followed relates to how much income should be saved. Workers were told to set aside 10% of their salary to be prepared for retirement.

Perhaps this was good advice at some point in the past? Not anymore:

a number of factors, including longer life spans, lower projected market returns, and the declining buying power of Social Security benefits, have affected the amount future retirees should put aside.

Well, if 10% isn’t enough, what is?

We’re advised that “workers should set personalized goals to see how much they should invest or otherwise aim to save a minimum of 15% to 20% of income if they're not willing to take the time to do that.”

Notice in the quote above, that line about “declining buying power of Social Security benefits.” That brings us to our next crucial consideration: How do Social Security benefits fit into your retirement savings plan?

#2 – Social Security is supplemental, not fundamental

The National Institute on Retirement Security informs us that 40% of older Americans rely solely on Social Security benefits to provide their retirement income. That said, according to National Interest, those benefits we’ve worked so hard and paid so much for only replace about 40% of pre-retirement income.

That’s a concern when we consider retirees typically spend 55%-80% of their pre-retirement incomes. That means, at best, Social Security simply cannot offer the income we’ll need.

Furthermore, there's a reason we describe folks living on Social Security as having a “fixed income.” When their living expenses go up, their income doesn’t.

To be clear, Social Security payments do change year to year thanks to the “COLA” or cost-of-living-adjustment. Benefits are updated annually according to a formula that considers the previous year’s inflation.

Two small problems with that…

First, COLA adjusts this year’s money for last year’s costs, which means your benefit increases are always at least one year out of date. Maybe that doesn’t sound like a big deal.

Second, COLA doesn’t exactly keep pace with actual price hikes. Here’s an observation made in MarketWatch:

The 2022 COLA is only 5.9%, when the CPI-W — the index used for adjusting Social Security benefits — increased by 7.8% year over year in December.

The hope is that inflation will stay stable and COLA will help a saver’s Social Security benefit to keep pace with inflation, just one year out of date.

However, we’ve seen prices climb at a faster pace each month since January 2021. That’s the “stubbornly, persistently high” inflation Federal Reserve Chairman Jerome Powell complained about recently. For those Americans on a fixed income, this means every month that the pace of price hikes exceeds this year’s COLA robs retirement savers of their purchasing power permanently.

That’s a solid rationale for considering your Social Security benefits as merely support for your expenses in retirement. We’ll probably all need more to live comfortably.

There’s one way to do this through Social Security, which is to delay your benefits claim until after your full retirement age (this can result in an 8% increase in your monthly benefit). That’s better, but still leaves us with a best-case scenario of replacing only 43.2% of our pre-retirement income.

So far we’ve talked about how much we’re told to save, and what not to rely on. Now let’s talk about what we can do.

We all want our retirement savings to provide comfort and enjoyment during our golden years. So let’s take a look at one way to help make that a reality…

#3 – Are your savings properly diversified?

Having your savings over-concentrated could sabotage your retirement.

Diversification within an asset class isn’t as important as diversifying across asset classes. Fisher Investments explained a better approach:

There are various methods to construct a diversified portfolio, but all should start with the right asset allocation — the mix of asset classes in an investment portfolio.

Those “other asset classes” can include physical gold, silver, or other precious metals. You can’t invest in these tangible, intrinsically-valuable items in most retirement accounts, though. A self-directed IRA opens the door to not only physical precious metals and other asset classes, it also allows you to invest in the other financial products you’d find at a brokerage.

What makes physical precious metals different is primarily that they aren’t a liability. (They’re also unhackable, uninflatable and still exist even when the lights go out.) In other words, their value tends to be uncorrelated with economic growth.

Shuller says,

When you are planning your own retirement, it is important to be mindful of what constitutes diversification and what doesn't. Owning a lot of different assets might make you think you are diversified, but if they all act the same way, you aren't diversified.

This point bears repeating: One of the greatest benefits of investing in physical precious metals is their general lack of correlation with economic growth.

Many investors who own gold and silver didn’t buy because they love gold and silver. They invested in physical precious metals for their diversification benefits. It’s strictly a financial decision.

Bridgewater Associates founder and legendary investor Ray Dalio probably put it best:

“I believe it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”

Ray Dalio’s net worth is about $20 billion, so presumably his advice is worth consideration. Prudent investors will want to learn how gold performs over time and consider the benefits of well-diversified savings. There isn’t much we can do to both reduce risk and enhance returns, after all…

Let’s all do what we can to maximize our chances for a comfortable retirement.

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