A recent Gallup poll revealed that 57 percent of Americans feel powerless when it comes to save and plan for their retirement. Only 43 percent feel that they have some measure of control.
Even with that optimism, the true numbers are grim. A Wells Fargo survey last year revealed that the average American had only $29,000 saved for retirement. Assuming the average withdrawal rate of 4 percent per year suggested by financial advisers, that amounts to a mere $1,160 per year—or a pittance of $96.67 per month.
Let’s face facts: Retirement is not a given. The concept of retirement itself is only a few generations old, thanks to the longer lifespan and high relative wealth we enjoy today compared to even a century ago. Programs like Social Security are meant to be a supplement in old age, not the primary source of income. As the baby boomer generation goes through retirement and stress the system, future beneficiaries will likely face lower payouts.
Fortunately, you can have a comfortable retirement. Three easy steps can get your retirement back on track, whether you’re comfortable with your current situation or not.
First, live below your means. For some, this goes against the notion that you need to keep up with the neighbors and always have the newest car, television, or “iProduct.” The entire point of living below your means in the present, however, is so that you can enjoy more in the future. On average, the current U.S. personal savings rate is 3.4 percent. For those looking to retire, saving at least 10 percent of your income consistently will get the job done. If you’re behind on savings, cut back on expenses and start saving closer to 20 percent.
Second, ditch high-fee investment vehicles like mutual funds. Over time, fees and taxes can add a significant drag to portfolio returns. A better solution is to invest in no-fee direct stock purchase plans (DSPs). Many companies offer the opportunity to buy shares from them directly with lower fees than a traditional brokerage, and re-invest the dividends into partial shares.
Finally, turbo-charge your portfolio by employing options. This includes selling covered calls on stocks and selling puts to generate income. An options-based strategy helps take the sting out of market gyrations. If done right, investors can lock in returns of 15 percent or more per year without actually owning stocks or bonds.
Employing these means can get your retirement back on track. The steps are easy, but implementing them will be hard. That’s because it also takes patience and discipline for this strategy to work. Most retirement strategies fail because people don’t commit to a plan; they simply move on to the next investment fad that seems to be getting the biggest results.
Look beyond the market’s short-term fluctuations. Over time, a slow and steady strategy of accumulating shares of quality companies and generating income will win the race.
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