Some people talk about living a full and happy life by working well into their 70s or 80s. When I encounter these people, I want to shake them and scream, "What is wrong with you?"
If I ever met Oracle's (NASDAQ:ORCL) Larry Ellison, or had a meeting with Bill Gates at Microsoft's (NASDAQ:MSFT) offices in Redmond, or even sat down at a Dairy Queen with Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) Chairman Warren Buffett, I'd have a few questions: Aren't you done yet? Aren't you done building your empire? Haven't you made enough money? Wouldn't you prefer to read a good book rather than a business report? Wouldn't you rather sit around sipping pina coladas instead of having power lunches with other billionaires?
I understand the need to be active. I'm not saying I want to lie down and die. But I have plenty of stuff I want to do beyond work. That's why I've always been obsessed with retirement.
"That's all well and good, you slacker," you say. "Most of us aren't wired like Buffett. We want to call it quits and coast into our golden years. But how do you get there?"
It's easier said than done -- but I do have a seven-step plan.
1. Don't get ripped off
Don't fall for get-rich-quick schemes, whether they involve selling real estate with no money down, placing mysterious ads on the Internet that guarantee you thousands in sales, or acting on hot tips from a broker who cold-calls you. There's no better wisdom than this: If it sounds too good to be true, it probably is.
2. Don't turn down free money
If your employer offers you matching funds in your 401(k), and you don't take advantage of it, you are throwing money away. If you're eligible for an IRA, and you don't contribute as much as you can every year, you're stealing from your own future -- and tossing extra money to Uncle Sam by passing up tax breaks.
3. Don't fear stocks
It's a fact: Inflation will erode your long-term savings if you leave them in low-interest-paying bonds or money market funds. You want to retire before you're 90, don't you? Stocks are still the best-performing investment vehicle for the long haul.
4. Take advantage of volatility
The best way to capitalize on the volatility of the stock market is to dollar-cost average into your 401(k), IRA, or other investment accounts every month. That way, you'll buy fewer shares of stock when prices are wildly high, and more when stocks are more affordable.
5. Take the easy route to investing success
Nobody says investing in the stock market has to be rocket science. You can beat 75% of the mutual funds out there just by putting your money in a total market index fund. If you want to pick your own stocks, the Fool can help. But if you just want to put it on automatic pilot, you could do far worse than choosing an index fund.
6. Don't chase hot stocks
We've all been there. Maybe you bought Google (NASDAQ:GOOG) at $700, or Freeport-McMoRan Copper & Gold (NYSE:FCX) at $125, or Crocs (NASDAQ:CROX) at $70. There's nothing wrong with taking some risk -- with money you can afford to lose. Which means you should have a healthy chunk in an index fund or safer, dividend-paying stocks.
7. Let other people do the hard work
OK, here's where I show my true colors. As I'm sure you've gathered by now, I'm a lazy investor. And while there are definitely some things you can easily do to give yourself the best chance for a great retirement (see steps 1-6), planning for retirement is not easy. It's filled with pitfalls and choices. And I hate pitfalls and choices.
If you're like me, you want to get the best information and advice available to make sure you not only stay on track with your investments, but also successfully navigate the intricacies of asset allocation, insurance, long-term care, taxes, and Social Security, while ensuring you do the things that are important to you -- such as waterskiing and doting on your grandchildren.
Whether you're 30 years from retirement or living in retirement right now, you need somebody in your corner helping you keep your dreams on track. That may be a good financial planner, if you can find one, or our Rule Your Retirement newsletter.
Now, I don't promise that these seven steps will guarantee success, but they're a step in the right direction. I've seen enough people get burned by poor advice and poor planners. I've also seen too many people not do anything to plan for retirement, and that can be just as dismal. Worse yet, I've known folks who had retired, made some mistakes or miscalculations, and then had to unretire. That's a path I plan to avoid at all costs.
If you don't take stock of what you'll need to do to give up your day job for keeps, you may never get to Tahiti (and stay there). And -- assuming Tahiti's your destination of choice -- that'd be a crying shame.
For more on retiring well, read about:
- How you can wind up wealthy.
- This monster could eat your retirement.
- Is it time to cash out of stocks?
