海角大神

Here鈥檚 an interesting article I discovered over at the Vanguard site about the basics of retirement planning. In it, the article quotes a section of Scott Adams鈥� 2002 book聽:

Everything you need to know about financial planning

Make a will.
Pay off your credit cards.
Get term life insurance if you have a family to support.
Fund your 401(k) to the maximum.
Fund your IRA to the maximum.
Buy a house if you want to live in a house and you can afford it.
Put six months鈥� expenses in a money market fund.
Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.

If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) hire a fee-based financial planner, not one who charges a percentage of your portfolio.聽

I largely agree with the ideas presented here and聽I think that, if your primary goal is to save for early retirement above all else, this is a聽great听辫濒补苍.

I have just a few small problems with this plan.

First of all,聽there鈥檚 no encouragement to cut out unnecessary expenses.聽The broad stroke of 鈥渢ake whatever money is left over and invest it鈥� doesn鈥檛 point people toward one of the most powerful tools there is for improving their financial state 鈥� taking a serious look at their life and cutting back where it makes sense.

It is聽very聽easy for anyone to slip into a routine of spending money without any real benefit. We鈥檒l start a Netflix subscription, for example, and keep paying for it even though we rarely use it. Taking a regular hard look at one鈥檚 expenses can provide quite a lot of money for investment.

Second, the聽money market fund idea isn鈥檛 a good idea for most people right now.聽At this point in time, having money in a money market fund is like having money in a savings account that returns only a聽聽and isn鈥檛 FDIC insured. There are times when a money market fund is a decent place to store your cash. Right now isn鈥檛 one of those times. Use a savings account.

贵颈苍补濒濒测,听it doesn鈥檛 look at non-retirement goals.聽Like I said earlier, this is a great plan if you鈥檙e saving for early retirement. If you鈥檙e not saving for early retirement, you鈥檙e going to want to take a different approach to the 鈥渕oney left over鈥� investment and you might not necessarily want to be maxing both your 401(k) and your Roth IRA.

If you have non-retirement goals, I鈥檇 say it鈥檚 a good goal to be saving 10% of your income for retirement and throw everything else you can toward that non-retirement goal. If that goal is farther off than eight or ten years, then you might want to follow the investment advice above. Otherwise, you鈥檒l probably want to be more conservative than that because stock market volatility makes stock investments much less of a sure thing over a term shorter than eight years. The stock market has leaped and fallen and leaped again like a hyperactive gymnast over the last eight years and over some shorter periods it has seen some聽devastating听濒辞蝉蝉别蝉.

Aside from those quibbles, if you鈥檙e looking for a very straightforward plan for financial success, this is a pretty sensible one.

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