Karl Eggerss was on CBS to discuss helpful tips on improving your retirement.
Speaker 1: We’re keeping you Money Smart on Sunday Mornings. After years of hard work, who wouldn’t look forward to just kicking back and relaxing as a retiree? Well, here’s Sharon Ko with a financial advisor on the top mistakes that can ruin that long-awaited retirement.
Karl Eggerss: We’re living longer as humans, which is great with technology and everything else, but that means your dollars have to go much further in. One of the main things and it’s pretty obvious, but spending too much money. Now what does that mean, and what’s the context of that? Back in the early nineties, there was a financial advisor that came out with what’s called the 4% withdrawal rule, and essentially you should kind of limit how much you’re pulling off of your savings by a certain percentage. He came up with a 4%, and it’s supposed to take into consideration inflation and everything else. But if you kind of stick with that, it should sustain itself over time, assuming you have a diversified portfolio.
Sharon Ko: Another way is not saving enough?
Karl Eggerss: Yeah. And this is something that even as a young child or somebody that’s just starting out in the workforce if you can save 10 or 15% of your income, I mean that really goes a long way.
Karl Eggerss: And nowadays with 401k matching and so forth, it is fairly easy to get to that number. You may not start that way, but if you can work your way up to saving as much as you can and then you will feel free to spend after that what’s leftover. At least you know you have it budgeted, and you have an automatic savings program happening.
Sharon Ko: What about inflation?
Karl Eggerss: Inflation is big, and that’s probably the thing that most people don’t consider. If you think about what a truck might’ve cost, a top of the line truck back in the 1960s, which was only a few thousand dollars versus nowadays it may be 60, 70 thousand dollars. That’s inflation, and it happens very slowly. So, if you can retire today at 65, your costs over time are going to go up even if you don’t change your lifestyle. Planning for that and having investments that beat inflation is really the key. Sitting around just in a savings account or a checking account is probably you’re going to lose purchasing power over time. So, people not ignoring inflation is a really big one.
Sharon Ko: What are some ways people can diversify their portfolio?
Karl Eggerss: Well, a lot of folks learned a bad lesson in the 2007 through 2009 financial crisis, which was they owned a lot of different types of stocks or a lot of different types of mutual funds, and they all went down. Most of them, I should say. So really diversifying means having a rainy day fund, owning some stocks, owning some bonds, owning some real estate, maybe owning some precious metals. Really diversifying in that form or fashion will at least alleviate a lot of the bumps along the way. You’re always going to have some bumps, but it’s when folks have too much of a concentrated position, whether it’s their company stock, that’s a common one we see, or their favorite stock or their favorite mutual fund, that’s where people get into trouble. It can be too much of any one thing can cause disruption in retirement for your overall portfolio.
Karl Eggerss: I would say to put all this and put a bow around it, it would be to have a comprehensive financial plan. If you don’t have a plan, it’s hard to know where you’re going. You have to have that roadmap and sticking to it. A lot of folks have a plan, but they don’t stick to it. They get a little fearful of this, or they spend too much money, or they’re not saving enough. If you have a well-established plan and you stick to it, your odds of success of having a successful retirement are astronomically higher.