Growth and Accumulation

The total secret to build you own viable retirement nest egg is:

Time * Compounding = Financial Freedom

Building your retirement fund is a long process similar to running a marathon of 26.2 miles. In your twenties when you start working full time you should definitely join and participate in any employer 401k or 403b plan. If you are fortunate enough to own a company, you should establish a 401k / Profit Sharing or a DBP (Defined Benefit Plan): 

 

  Maximum Contribution Catch-up Contribution
(if >50 yrs old)		 Total
401k (Salary reduction plan $16,500 $5,500 $22,000
IRA or Roth Contribution $5,000 $1,000 $6,000
401k / Profit Sharing Plan $49,000    
Defined Benefit Plan $245,000    
Simple IRA $11,500 $2,500 $14,000

 

 

                                                                                              

Financial Planning

The prime rule in financial planning is to maximize your 401k plan at work, especially if your employer is making a matching contribution. It is strongly recommended that one invest at least 10% of your compensation into some retirement plan.

We’ve all seen the illustration of a 25 yr old investing $333.34/month for 40 yrs which can grow to over $1.0 Million by the time you reach retirement age.

Also it is important to make sure that all your interest and dividends are reinvested to increase your over all rate of return.

Your risk tolerance (see Risk Tolerance Questionnaire) will be a guide in setting your Asset Allocations which determines the distribution of your investments among:

  • Equities
  • Bonds
  • Cash or (cash equivalents).

It has been proven that your Asset Allocation will contribute about 92+% of your annual rate of return and the total nest egg you will have.

Once you have your Asset Allocation, make sure that your investments are highly diversified with a maximum of not more than 10% in any one investment, especially your employer stock.

All of your investment choices should provide you with the following parameters:

  • Control
  • Visibility
  • Accessability
  • Liquidity

Clearly stocks, mutual funds, CDs give you these tools.
By contrast, Annuities do not give you any of these tools.

Inflation and income taxes will be headwinds to reduce the overall growth in your portfolio. To the extent you can, participate is some tax deferred plan (such as a 401k or IRA), better yet Roth, to grow you investments.

There will be many competing needs for your funds as you run the marathon on the way to retirement. Make sure that you give it a priority and invest at least 10% - 15% of your compensation into a retirement plan. REMEMBER, NOONE ELSE IS GOING TO PAY FOR YOUR RETIREMENT.