The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

CHAPTER 6

Building Your Portfolio

How much money will you need in retirement? How How much money will you need in retirement? How much should you save to get there? Once you have retired, how much of your portfolio should you spend in retirement? The answers to these questions boil down to two simple rules: First, save as much as you can, start as early as you can, and do not ever stop. Second, consider an immediate fixed annuity in retirement.

Financial Planning for a Lifetime: The Basics

Each dollar you do not save at 25 will mean two inflation-adjusted dollars that you will need to save if you start at age 35, four if you begin at 45, and eight if you start at 55. In practice, if you lack substantial savings at 45, you are in serious trouble. Since a 25-year-old should be saving at least 10 percent of his or her salary, this means that a 45-year-old will need to save nearly half of his or her salary. Most 45-year-olds will find this nearly impossible, if for no other reason than the necessity of paying living expenses, payroll taxes, and income taxes.

Some retirement experts have argued that such aggressive over-saving risks “under-consuming” during an investor’s prime years—that is, unnecessarily depriving yourself now in order to be perfectly safe in the future. I respectfully disagree, and urge you to remember Pascal’s Wager. The possible adverse consequences of under-consuming in your youth or middle age pale in comparison to the risks of not saving enough for old age. ...