Retirement planning mistakes

Motto: “You must learn from the mistakes of others. You can’t possibly live long enough to make them all yourself.” (Sam Levenson)

As i firmly believe that is easier to learn from other's mistakes than to learn it the hard way, by doing them, i want to say something, based on what i just read today. I will make a list of the most common mistakes i found (and i do not want to make).

1. No plan
According to the Retirement Confidence Survey from the Employee Benefits Research Institute, 48% of workers haven’t calculated how much money they need to save for retirement. What? If you are in this category, here is a link to a one-minute plan. Use it! No, really, i mean it, use it! Similarly, Harvard Business School published a study on goal setting and found:
- 83% don’t have clearly defined goals
- 14% have goals but they aren’t written down
- Only 3% have goals committed in writing. After a 30 year follow up, the conclusion was the 3% with written goals earned an astounding 10 times the amount of the 83% group. Shall i say more?

2. Not saving enough
Here’s a shocking set of statistics for you:
- According to the Federal Reserve, the median balance of retirement savings for Americans is $60,000.
- The median retirement savings balance for those aged 35-44 is $42,700.
- The median retirement savings balance in the 55-64 age category (people near retirement) is $103,000.
In a PBS interview, Jack Vanderhei of the Employee Benefit Research Institute said you need to save 13.3% of your total income if you’re a male who works for 30 years, retires at 65, and only relies on Social Security and his retirement plan. A female needs to save 14.1% – employer and employee contribution combined – because of longer life expectancy. If you want to retire 5 years earlier at age 60, then contribution rates rise to 14.5% and 15.3% respectively. Vanderhei isn’t a lone wolf in these seemingly aggressive calculations. Brooks Hamilton calculates retirement savings contribution rates between 15% and 18% of earned income depending on assumptions. This is greatly in excess of average savings rates for most employees. And if that weren’t enough to shock you, Jack Bogle of Vanguard Mutual Funds fame points out people who don’t start saving until age 40 should contribute 25% of their income to retirement savings because they need to make up for lost time. Of course, there are some who save more than 50% of what they earn (What? And no, they are not millionaires, but average people on average wages, the word stoic say something to you? Frugal? Not spending on silly things?)

3. Not starting to save early enough
The most valuable asset you have when saving for retirement is time. Not yet, it is not the right time, you will say. The reality is there will never be a “right” or convenient time to start building toward a secure retirement. It will never be easier than today. It will only get harder because there’s less time. Do not delay it.

4. Not maximizing tax deferral
 Or as John Maynard Keynes said: “The avoidance of taxes is the only intellectual pursuit that carries any reward.” It is good, it is free, result in extra money towards your retirement plan. Why not use it?

5. Spending too much or too little.
Again with a quote: “We have some control over when we retire. However, we have very little control over how long we live.” (Gordon Smith) Make no sense to spend more than we can possible earn, Also, make no sense to become saving hunters, even if "challenge everything" is a good habit when we talk about money, we need not to live a miserable unfulfilled life. See this post about money allocation for an example. And remember, you can play with the percentages.

6. Investing too aggressively or not aggressive enough.
Controlled risks, that's the word. Set a percentage of your money that you are comfortable to lose and experiment with it. Mine is somewhere between 5% and 10%. Use that money for investments that will have 100%-1000% profit. If is good you will have a lot of money, if not, you afford to lose it. But if only 1 out of 5 of this experiments succeeds, you get more money than all 5 sums invested traditionally. That's the idea. If you invest too much you can lose a significant amount, but if you do not risk at all, you will not have enough return on investments to do it faster.

7. Paying too much investment expenses.
Really, you need too research a bit, the internet is free. Do not believe your bank just because they said they will do it for you. Look around for better offers. Learn about compounding. See if you can teach yourself to do it. Premium rates are often not justified in a financial world.In the end, when we talk about shares, everyone is guessing. So why to pay somebody else to guess for you? Educate yourself, is much more rewarding. And doable.

Good luck and a good week!
G.

How to became financially independent in ten steps - midnight story

When you just start on your way to financial independence, is usually a very personal choice. You want that! You get enough of a life behind the desk! You can do it! And you start the tenuous process of learning, the journey from the absolute beginner to glorious expert that can finally retire from "that" uneventful job because he/she just mastered the secret technique of the middle finger.
There are some steps, and you can follow them or jump over a few, depending on how fast you learn. Hint: there are so many others that already did the research, made all the mistakes and reach the final goal, so any clever person will study the Chosen Ones that are already retired very very early, by all means. And i know that you are clever enough, because you want to become a FI fighter.
Step 1: You heard about some strange people who were so lucky that managed to retire at age of 40, or even 30. Maybe they won the lottery.
Step 2: You are curious to find more, and you discover that not one of them was a lottery winner, but they just saved the money they needed for this. Must be some amazing people with hundreds of thousands as salary.
Step 3: You realize that they are normal people, on average salary, and they managed to save 50-80% of their monthly wages. How seems to be that 5% of your savings now?
Step 4: Still not believing, you start to ask yourself, if they did it, maybe i can do it too. This is the moment when you start reading about everyone and you will find that this is a modern trend followed by many, and a lot of people around you already achieved financial independence.
Step 5: You act and start saving like a mad, but the numbers will show that you will need some 10-20 years of savings until you get there. Start checking even more,
Step 6: You will find that some of them are better than others, and you realize that the difference is made by a solid plan. You understand that you need simultaneously to reduce your expenses and to find alternative ways to gain more money in order to invest regularly.
Step 7: You made your plan. You are now at 5-7 years away from FIRE (financial independence/retirement early).
Step 8: Your work became a pleasure, because you know your final goal. Your quality of life increase even when you try to teach yourself discipline and motivation. Your savings are increasing steadily every year.
Step 9: You reach your goal. You can stop working for the money.
Step 10: Your life as a free human being begin now. A new adventure. Are you ready to enjoy it? Of course you are, you trained for this in the past years.


P.S. I can share my story and i can help you with relevant links if you are ready to start. (He he! The links are already here in this post, by the way, did you see it?)

Companies that i start using on my early retirement plan

As i was asked with which companies i work on my plan, i will talk about them here.
As person to person lender i use ratesetter.com. Is very simple and intuitive to use it and what i like more is that you can make the process completely automatic. Set the direct debit, set what percentage under or over the interest level you want to lend the money and that's it. I tried to use wellesley.co.uk as they can add even the interest in this miraculous process of compounding. The only problem, or advantage, depending how you see it, is that you need to wait 30 days to move some money in your bank account.
As for online share dealing platform i use youinvest.com from AJ Bell. I tried share.com too but seems to be too tricky for me. On youinvest.com i can sort of automatize the process. Direct debit and automatically buy of shares every 10th of the month at £1.50 per transaction. But the inconvenient is that  i need to buy the mutual funds and trackers manually at £4.50 per transaction.
As for property crowdfunding i use propertymoose.co.uk. I also tried propertypartner.co but first one is more straightforward and is offering better rates than second one. Even if the minimum amount is £500 instead of £50 for propertypartner website.
As cash bank account i use TSB, because of the 5% interest for the first £2000.  They also have a saving account with 5% interest for 12 months.

This is what i use for the moment. I will update my plan again probably in December or January if is the case.

Early retirement extreme

And looking around i found a brilliant guy who did what i still have to do for the next 9 years in just 5. It is a bit technical but you can understand it. I could not see to many website like this one in UK, so i need to adapt all this USA oriented knowledge, but anything is good as long as i improve my odds.

The website is called earlyretirementextreme.com, and the guy did it at the age of 30. Impressive, isn't it?