Retirement age

From Wikipedia, the free encyclopedia

This article lists the statutory retirement age in different countries. In some contexts, the
retirement age is the age at which a person is expected or required to cease work and is
usually the age at which they may be entitled to receive superannuation or other
government benefits. Policy makers usually consider the demography, fiscal cost of ageing,
health, life expectancy, nature of profession, supply of labor force etc. while deciding the
retirement age.
Contents   
1 Retirement age by country
2 Gender inequality
3 Reform
Retirement age by country
Many of the countries listed in the table below are in the process of reforming the ages (see
the notes in the table for details). The ages given in the table reflect the age at which one
retires if they retire/have retired/ in the year given in the table. The trend in some countries
is that in the future the age will increase gradually. Therefore, one's year of birth
determines when one has the age of retirement. (E.g. in Romania women born in January
1955 had the retirement age in January 2015 at age 60; those born in January 1958 will
retire in January 2019 at age 61; those born in January 1961 will retire in January 2023 at
age 62; those born in January 1967 will retire in January 2030 at age 63).
Retirement age
Country Men Women Year men women
Albania 65 60 2012
Argentina 65 60
Armenia 63 63 2011
Australia 65 65 2016 67 67 July 2023
Austria 65 60 2015 65 2033
Azerbaijan 62 60 2012
Bangladesh 59-60 59 2012
Belarus 60 55 2007 63 58 2022
Belgium 67 67 2017
Bosnia 65
and 65 2011
Herzegovina
Brazil 65 60 2015
Bulgaria 64y4months 61y4months 2015
Canada 65 65
Chile 65 60
China 60 55 2011
Croatia 65 61y3months 2015 67 67 2038
Cuba 65 60 2015
Cyprus 65 65 2011
Czech Republic 62y10months 58-62 2015
Colombia 62 57 2014
Denmark 65 65 2015 67 67 2022
Estonia 63 63 2016 65 65 2026
Finland 62–68 62–68 2008
France 60 52 2015 67 67 2023

Georgia 65 60 2011
Germany 65y3month 65y3month 2015 67 67 2029
Greece 67 67 2015
Hungary 62y6months 62y6months 2015 65 65 2022
Iceland 67 67 2007
India 56-60 56-60 2014
Indonesia 58 58 2014
Ireland 66 66 2015 68 68 2028
Israel 67 62 2011
Italy 65y7months 65y7months 66y7month 66y7month 2018
Japan 60 60
Kazakhstan 63 58 2015 63 2027

Republic of Korea 60 60 2016

Kyrgyzstan 63 58 2011
Latvia 62y6months 62y6months 2015 65 65 2025
Libya 65 65 1980
Liechtenstein 64 64 2007
Lithuania 63y2months 61y4months 2015 65 65 2026
Luxembourg 65 65 2011
Macedonia 64 62 2011
Malaysia 60 60 2013
Malta 62 62 2015 65 65 2027
Mexico 65 65 2015
Republic of 62 57 2015
Moldova
Montenegro 65 60 2013
Morocco 65 65 2014 66 66 2017
Namibia 60 60 2015 50 50 2016
Nepal 58 58 2007
Netherlands 65y3months 65y3months 2015 67 67 2024
New Zealand 65 65 2013
Norway 67 67 2011
Pakistan 60 60 2007
Philippines 60 60 1990
Poland 65 60 2016
Portugal 66 66 2014
Romania 65 60y6 months 2017 63 2030
Russian Federation60 55 2015
Saudi Arabia 60 60 2014
Serbia 65 60 2011
Singapore 62–65 62–65 2012
Slovakia 62 58y3months-62y
2015 62 2017
Slovenia 64y4months 64y4months 2015
Spain 65y3months 65y3months 2015 67 67 2027
Sri Lanka 55 55 2014
Sweden 61–67 61–67 2014
Switzerland 65 64 2015 65 2020
Tajikistan 63 58 2011
Thailand 60 60 2015
Trinidad and 60–65 60–65 2015
Tobago
Turkmenistan 62 57 2011
Turkey 60 58 2014
 Ukraine 60 57 2015 62 60 2021
United Arab Emirates 65 65 2010
United Kingdom 65 64 2017 68 68 2046
United States of 66 66 2015 67 67 2027
America
Uzbekistan 60 55 2011
Vietnam 60 55 2011
This is the minimum retirement age required for all urban workers who have contributed for
at least 180 months (15 years) - see below. If they have contributed for at least 35 years (for
men) or 30 years (for women) - or less, for teachers, for workers exposed to harmful health
agents, for disablement, and for disabled people (if proved) – it is possible to retire before
the minimum age. Regarding to non-urban workers (farmers, fishermen, and native Indians,
among others) and to disabled people (if proved), these people are considered "special
insured". Thus, the minimum age is reduced in 5 years (60 years for men, 55 years for
women); this rule is only valid if these people prove they are still working under these
circumstances at the moment of retirement. It is necessary to have at least 180 months (15
years) of contribution in order to retire (in all cases cited above)
The standard age to begin receiving a CPP retirement pension is when one attains age 65
(the month following the 65th birthday). However, one may receive a reduced CPP
retirement pension as early as the month following the 60th birthday. Alternatively, one
may receive an increased pension after reaching age 65. Canada also has a pension
supplement with different rules called Old Age Security (OAS).
In the Czech Republic, in the year 2015, men had the retirement age of 62years10months
and women had it between 58 and 62, depending on number of children. In Czech Republic,
the retirement age is in the process of being increased, and therefore depends on year of
birth (for individuals born after 1977 it may exceed even 67. e.g. a person born in year 1995
must be at least 70 years old.) For women the retirement age depends on the number of
raised children as well. For people born in 1975, the retirement age will be the same
(66y8m) regardless of sex and number of children raised; and this age will reach 67 for
people born in 1977.
The retirement age for an employee depends on the employment contract. Upon
retirement, the retired employee should be given his/her benefits according to the
agreement or contract between the employer and the employee. However, if there is no
existing retirement plan or agreement for the employee, he/she may retire at the age of 60.
Given that he/she has served the employer for 5 years, and shall be given a retirement pay
of at least half a month’s salary for every year of service (6 months of work given is
considered as 1 whole year for the retirement pay).
The average of statutory retirement age in the 34 countries of the Organization for
Economic Co-operation and Development (OECD) in 2014 was males 65 years and females
63.5 years, but the tendency all over the world is to increase the retirement age. This is also
reflected by the findings that just over half the Asian investors surveyed region-wide said
they agreed with raising the retirement age, with a quarter disagreeing and the remainder
undecided.
Gender inequality
Men retire either later than women do or at the same time. This inequality is being
addressed in some countries where the retirement ages are being equalized.
Reform
Reforms tend to be phased-in slowly when the retirement age (or pension age) is increased,
with grandfathering ensuring a gradual change. In contrast, when the age of retirement is
decreased, changes are often brought about rapidly.
One such example of grandfathering are the transitional pension rules which were applied
for staff aged 54 years or older, and to some extent for all staff in place, when in 2014 the
retirement age of European civil servants was increased to 66 years of age.
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Retirement Planning: How to Plan for a Successful Retirement
By Joshua Fields Millburn ·

Youth is, wasted on the young. Often, money is, too.

Back in my corporate days, when I managed scores of retail stores and hundreds
of employees, I stressed the importance of planning for retirement—as well as
saving for future goals—with every person I hired. Before the start of their very
first shift, I would sit down with each new team member and show him/her how
to save for retirement without stress, worry, complexity, or pain. Within a few
minutes, I could literally see the difference in their physiology as trepidation
drained from their facial features and, after we spent 30 minutes examining
their options, confidence began to take over once they realized planning for
retirement is much simpler than they thought.
Most of these employees had not given much thought to saving for the future:
maybe they had heard their parents or spouses maunder about stocks, bonds
and mutual funds, but they had not considered which path to take because
planning for the future, especially with respect to finances, is overwhelming,
daunting, boring. There are so many options, so many so-called experts, so many
ways to screw things up. So, like many of Americans, they stood stuck in
analytical paralysis, opting instead to postpone the decision for another time in
some nonexistent hypothetical future. You know, “one day.”
One day: these two words are dangerous because they give us an excuse to
shelve important decisions that radically influence our future. Waiting for “one
day” to arrive does not solve the problem—it makes it worse. Each day we wait,
the worse it gets.
Just as with my employee orientations of yesteryear, I want this essay to serve
as an inspirational and informative “sit-down” in which I clear the fog of
decision-making and help you, the reader, make an informed decision based on
what I have done with my own financial future. I truly believe that after reading
this step-by-step process, you can plan for retirement in less than an hour.
Using screenshots and my personal finances as a concrete example, I provide the
necessary tools and a step-by-step strategy for you to quickly understand how
easy it is to begin saving for retirement, regardless of where you stand on the
socioeconomic ladder. Not only retirement, though—I also want to help you
save for other future objectives: establish a Safety Net emergency fund, build
wealth with smart investments, and own your house outright, if that’s a dream
of yours.
And most important—I want it to be simple, because I know, based on years of
experience, if I can make the complex concept of retirement planning simple,
then you have a much better shot at getting started immediately.
Ultimately, I hope to eliminate the fear of financial planning and help you realize
it is simpler than you think.
7 Retirement Myths Debunked
Before I get to my examples, I will allay your fears by addressing a few of the
worries I have heard throughout my years of helping others set up retirement
accounts:
Myth 1. I’m too old to save for retirement . I frequently
hired employees who were older than I was—often in their forties and fifties—
with no retirement-savings plan. Fear had long ago set in, and they figured it was
too late. They were stuck; they had missed their opportunity. Not true. While it
is true that you are better off starting at age 25 than 50, it is also true you will be
better off starting at age 50 than, say, 70. Then again, 70 is a better start than 90,
is not it? The past is the past. We must stop peering at the rearview and instead
look ahead toward the horizon. As long as you are still breathing, it is never too
late to start. It is never too early, either.
Myth 2. I’m too young to save for retirement . Too
young? Are you insane? If you are younger than 30, you have it made! Young
people, no matter your tax bracket, have a significant opportunity to become
truly wealthy thanks to the power of compound interest. Someone who invests
$25,000 by age 25, with a 12% rate of return, will have more than $2 million by
age 65—even if he or she doesn’t add another dollar after age 25. Conversely, if
that same person waits until age 30, he or she will have to contribute more than
three times as much to achieve the same outcome. The lesson? Compound
interest is the best way to grow your money over the long haul—so start while
you’re young. To visually illustrate the difference between starting at age 25 vs.
35, check out this Business Insider graph:

Myth 3. I do not make enough money to save for retirement .

Actually, there is no reason you should not retire a millionaire. That is right:
virtually everyone, even minimum-wage earners, has the opportunity to be a
millionaire when they retire. It sounds too good to be true, but the math proves
otherwise: a 25-year-old who sets aside only $23 per week will retire with more
than a million dollars if the money is invested properly (12% rate of return).
Okay, so maybe you are not 25 anymore—me, either! That is all right—us older
folks simply need to adjust accordingly. Betterment has an investment-and-
retirement calculator to help you understand exactly how much money you
need to save based on your age and financial objectives.
Myth 4. Inflation will hurt my retirement nest egg . This is the
only myth that is partially true; however, its truth is irrelevant. While it is true
$100 dollars ten years from now will probably possess less buying power than
$100 today, the flip side of that coin is also true, and considerably more
important: your $100 ten years from now will be worth infinitely more than your
friend’s $0 invested. In fact, solid investments are the only way to outpace
inflation. It is better to invest your $100 than keep it in a bank or under your
mattress.
Myth 5. I would rather spend my money on something
else. When intentions are good, this excuse occasionally sounds like the most
compelling reason to avoid saving for the future. True, we sometimes cling
selfishly to money, using our income to purchase superfluous trinkets of
ostensible success (new cars, shiny gadgets, accoutrements of consumerism),
but frequently we want to use our money to contribute beyond ourselves
(charities, nonprofits, and loved-ones in need). Contributing to others is certainly
admirable, and I believe giving is living, so I want you contribute generously, but
I have found the best way to help others is to help yourself first—the best way
to give generously is to have more to give. Investing in yourself first helps you
flex your giving muscle. There is a reason airlines tell you to “secure your own
oxygen mask before helping others”: if it is easier to breathe, it is easier to help
people in need.
Myth 6. The stock market is not safe. Translation: you do not
understand the stock market. That is okay: I do not completely understand the
stock market, either—not intimately anyway (I am not a financial advisor, nor do
I play one on the Internet). The only people who must have an advanced
understanding of the stock market’s intricacies are stockbrokers, day traders,
 and fund managers. Rather than allocating several hours a day to learn the
nuances of mutual funds, index funds, and individual stocks, I choose to use an
investing service that takes the guesswork out of investing. It is true any
investment introduces risk into the equation, but long-term investing in the
stock market has proven to be the best way to grow your retirement savings:
over the last 25 years, including 2008’s steep decline and subsequent Great
Recession, the market has averaged a rate of return of nearly 11%. Even when
you account for 1929’s Great Depression, the market has averaged greater than
9% growth over the past 100 years (source: Morningstar). Investing in the
market is the most stable good-growth investment one can make in the long-
term, especially when using online tools that help you outperform the market,
many of which are, discussed in this essay.
I do not have enough time or knowledge to
Myth 7.
manage my retirement savings. It is true you and I will likely never
have as much financial wisdom as the experts, but that is precisely why we must
seek out tools developed by trusted, reputable experts. Although I am usually a
do-it-yourself kind of guy, I don’t DIY my investment strategy; rather, I did my
research and found online investment tools that allow me to control my money
without being overly controlling. I don’t want to constantly scrutinize my
investments—tweaking and reacting out of fear every time the market goes up
or down—but I don’t want to fly blind, either. Rather than flying the plane
myself, I put the best possible pilot in the cockpit.
Online Investment Tools
I manage the vast majority of my personal finances using Betterment’s online
software.
Of course, Betterment is not the only game in town—there are plenty of viable
options: Wealth front, Vanguard, Fidelity, Charles Schwab, and a slew of others.
However, when comparing Betterment vs. Wealth front vs. Vanguard vs. Fidelity
vs. Schwab vs. a bunch of other reputable online brokers, there are a handful of
important reasons, according to Betterment, to choose their service:
 Easy to use. Because I avoid complexity, I knew whichever online-
investment firm I chose, it had to be easy to use.
 Reputation. Betterment is the largest online, automated investment
service for a reason. Their portfolio is, designed to achieve optimal returns at
every level of risk. Through diversification, automated rebalancing, better
behavior, and lower fees, Betterment customers can expect 4.3% higher returns
than a typical DIY investor.
 No-cost setup and low fees. I am not a millionaire (at least not yet), so I
cannot afford to waste money on setup costs and fees. Unlike many investment
firms, Betterment does not charge to sign up for their service. That is correct: it
is absolutely free to establish a Betterment account. Better yet, their fees are the
lowest around. I remember paying 300 basis points (3.00%) to my previous local
broker, but now I pay only 15 basis points (0.15%). No, that is not a typo: fees
are often 20 times lower with Betterment. This is especially relevant considering
the power of compound interest. By not charging for trades or transactions,
Betterment manages their customers’ portfolios for far less than it would cost at
even a discount brokerage; plus, their fees only get lower as your assets grow.
 Not only for retirement. As you’ll see in the following Savings Strategy
section, not only do I use Betterment for my retirement planning, but I also use
it to house separate accounts for my personal Safety Net, Wealth Building, and
House Fund. By deferring a little money from my checking account to my
Betterment account each month, I keep myself safe from spending temptations.
Because my money is invested appropriately, it grows more than it would were
it sitting in checking or savings accounts.
 Vanguard index funds. Vanguard, a company well-known for its
integrity, has been the best place to invest in high-yield index funds for nearly 40
years. What are index funds? Index funds aim to replicate the movements of an
index of a specific financial market (for example, the S&P 500 is a popular index),
so it’s like investing your money in an entire index, as opposed to mutual funds,
which pool money from many investors to purchase a limited number of stocks.
While there is a slightly higher potential upside for mutual-fund investments, I
prefer index funds because of their considerably lower fees, relative stability,
and reliability. I have used Vanguard for both personal and business investments
in the past, and that’s one of the primary reasons I chose Betterment:
Betterment is essentially a well-built storefront for Vanguard, which I trust. So,
 with Betterment, I get the best of Vanguard plus at least three additional
Betterment benefits:
o Automatic Portfolio Rebalancing. Remember that 90s cookware
infomercial: “Set it and forget it!”? Well, I have very little desire to learn the
mechanics of portfolio rebalancing and dividend reinvesting, but with
Betterment, everything is automated—even deposits, if you’d like. Once I
established my Betterment account, I was able to effectively “set it and forget
it.” Sure, I still check in quarterly to take a peek at my financial growth—which is
pretty cool because their web-based interface is beautiful—but I know the best
strategy, once everything is set up, is to let the money grow and grow and grow
without fooling with it.
o Tax-loss harvesting. Tax-loss harvesting is the practice of selling a
security that has experienced a loss. By realizing—or “harvesting”—a loss,
investors are able to offset taxes on both gains and income. The sold security is
then replaced by a similar one, maintaining the optimal asset allocation and
expected returns. Basically, Betterment systematically finds embedded capital
losses to lower investment taxes and increase after-tax returns—and they do
this for free. (Note: I logged into my account today and saw I’ve had $57.89 in
losses harvested in the first three months of this year.)
o Beautiful interface. See “Easy to use” above. Betterment’s website
takes all the clunkiness out of old-time paper-trail investing.
 “60-second” rollovers. Rolling over a 401(k) from a former employer
can help you take control of your retirement—that’s what I did with my old
Fidelity 401(k) account: I rolled it into a Traditional IRA. Betterment offers
rollovers that take less than a week on average, and they have rollover concierge
available to assist you every step of the way, which made my rollover simple.
(You can rollover other accounts, too: 403(b), 457(b), Traditional IRAs, Roth IRAs,
and other similar retirement accounts.)
 Retire Guide. Betterment’s optional Retire Guide feature will make
recommendations for your non-Betterment 401(k) and taxable accounts, as well
as recommend what kind of IRAs you should fund. You can even look at
scenarios comparing whether or not social security will exist in the future, since
 that is a major concern for many folks (myself included). This free feature
even shows what kind of income you can withdraw during retirement.
 Diversity. Betterment uses years of investment research to construct a
globally diversified, passive portfolio based on Modern Portfolio Theory. Their
customers own exchange-traded funds (ETFs) representing up to 12 asset
classes. In plain English: diversification is the key to properly managing your
wealth through market upswings and downturns—Betterment provides this
diversity.
 Free resources. For the casual investor like myself (read: non-expert), I
appreciate the plethora of financial advice Betterment regularly doles out. Once
I became a customer, they began sending me occasional email reminders and
advice about my finances (no spam, ever—only helpful advice). It is the first time
I can remember enjoying reading about finances—because they made it easily
digestible and applicable to my personal situation.
Today’s technology is making investing easier, safer, and simpler than ever. You
used to have to hire a local broker and hope he or she had your best interests in
mind. While there’s nothing inherently wrong with a local-broker approach
(there are many wonderful brokers out there—I’ve dealt with several), I’ve
found that I feel more informed, more confident, more focused, and more
secure with the advanced tools being made available online in
today’s investment industry; plus, I’m grateful to pay considerably lower fees,
which helps my money grow more quickly (remember the power of compound
interest).
To be as transparent as possible, not only am I sharing my financial information
in this article (including screenshots below), but it’s worth noting that The
Minimalists used to be an affiliate partner for Betterment, but we opted out of
that program recently because it restricted our personal ability to freely invest
our money. That said, I still use Betterment to manage my money. Even though
Ryan & I don’t have an affiliate relationship with Betterment, which means we
don’t receive anything for recommending their service, their firm is the place I
trust most to manage my investments. If that ever changes, I’ll update my
viewpoint here at TheMinimalists.
6 Tactics: JFM’s Savings Strategy
The best way for me to help you save for the future is to show you my recipe,
that is, how I manage my own finances step by step: this way you can follow the
entire recipe or select ingredients that work best for you.
Strategy Overview: Of the six tactics listed below, I use Betterment to manage
the first four: Safety Net, Traditional IRA, Build Wealth, and House Fund. Here is
a screenshot overview of my Betterment account five weeks into the calendar
year 2015:

Now, looking at only the numbers, it’s easy for me to say, “Wow! That guy’s
loaded!”
Well—not exactly.
First, if I were to retire today, $176k wouldn’t be enough money because,
ideally, one wants to have enough saved to live off the interest, pay taxes, and
outpace inflation. Thus, if I wanted to bring home, say, $30,000 a year, I’d need
to have approximately $500,000 saved, earning 12% interest (2% for inflation,
4% for taxes, and the remaining 6%—$30,000—for income).
And second, of course, I’m not loaded. I don’t view this money as my money at
all; instead, I look at it as an investment in my future self: it is my future self’s
money. I’m not allowed to touch it. Besides, it didn’t happen overnight: I’ve
been investing for nearly a decade, slowly contributing a percentage of my
income each month with unwavering conviction. Even when income has been
low, I’ve made sure to pay my(future)self first by investing in my retirement
account and ensuring I have a Safety Net for emergencies.
The following six tactics outline exactly how I save for the future and plan for
retirement. (By the way, as Ryan and I discussed on our TEDx Talk, we certainly
don’t believe wealth directly correlates with a rich life; that doesn’t mean having
money is wrong—it’s not—it simply means money is not the primary driver for
my life. But with the money I do earn, I want to invest responsibly.)
Tactic 1. Safety Net. Before planning for retirement, it is best to plan for
emergencies. Life happens, so we must create an initial Safety Net bucket
containing $500–$1000, invested conservatively to avoid downturns in the
market. Warning: do not touch this money unless there is a true emergency
(e.g., car repairs, home repairs, job loss, medical bills, and other real
emergencies). In fact, this is why I keep my Safety Net in a Betterment bucket
instead of in my checking or savings: by removing it from my regular bank
account, I’m less tempted to use that money unless it’s an actual emergency,
plus I still have quick access to the money should I ever need it. Over time, once
you’re out of debt, your Safety Net will grow to include several months of
expenses (after years of saving, my Safety Net now has a year’s worth of
expenses and I no longer contribute to that bucket). But for now, worry only
about the first $500–$1000 to start. Once you’ve built your initial Safety Net, you
can begin piling cash into your Retirement Savings.
Tactic 2. Retirement Savings (IRA). Of my four Betterment buckets, I use a
Traditional IRA as my primary Retirement Savings bucket. As you can see from
the screenshot below, the majority of my money is kept in a Traditional IRA,
which is balanced aggressively toward stock-based index funds. As a Betterment
customer, I can drill down to the individual index-fund level if I feel inclined to
make adjustments to individual investments accordingly; although, in most
cases, I allow Betterment to recommend the particular funds in which I should
invest since they are the experts. Instead of a Traditional IRA, you can also opt
for a Roth IRA (or both if you’d like). The main difference between these two
types of IRAs is that Traditional IRAs’ contributions are pre-tax (thereby lowing
your annual taxable income), while Roth IRAs’ contributions are after-tax (which
makes them tax-free upon retirement, provided certain criteria are met). Both
IRA options are available through Betterment. I chose a Traditional IRA because I
rolled-over a large 401(k) from my previous employer. (Note: we’ll address
401(k)s, SEP-IRAs, and other similar employer-based retirement accounts in
Tactic 5.)
Tactic 3. Build Wealth. Because the U.S. government allows people to contribute
only up to a certain amount to an IRA each year, I deposit any additional
retirement savings into a Build Wealth bucket, which is set with the same
aggressive-growth configuration as my Traditional IRA, although the money in
this bucket is invested post-tax; thus, you need only establish a Build Wealth
bucket if you’ve first maxed out your tax-advantaged IRA contributions. (Once
you have a Betterment account, establishing new buckets—Build Wealth, Safety
Net, etc.—is easy: just a few clicks and you have a new bucket.)
Tactic 4. House Fund. One might say I’m “debt adverse”—but that is an
understatement. I hate debt! From my viewpoint, after experiencing crippling
debt for over a decade, there is no such thing as “good debt.” Sure, some debt,
such as a mortgage, is better than other debts, such as, say, a creepy payday
lender—but just because it is sometimes tolerable, debt is never a “good” thing.
Hence, although I’ve been a homeowner before (well, technically the bank
owned the home and I paid the mortgage), I currently rent an apartment and
save additional money into my House Fund bucket, which is adjusted more
conservatively than my Retirement Savings and Build Wealth buckets because
the House Fund bucket is ideally a shorter-term investment (fewer than five
years). For some people, this bucket is a great way to amass a reasonable
downpayment on a home (a 20% or greater downpayment allows the borrower
to avoid pricey Private Mortgage Insurance). For me, however, this fund is there
so when I decide to finally purchase another house, I will do so in cash. As you
can see, I have a long way to go, but I know it will be worth it.
Tactic 5. Employer Contributions. If your employer offers an employer-
matching, tax-qualified, defined-contribution pension account, such as a 401(k)
(or 403(b) or 457(b) if you work for a nonprofit or government entity,
respectively), then it is best to contribute to your 401(k) up to the employer’s
matching amount. For example, if your employer matches your contributions up
to 3%, then I encourage you to contribute 3% of your income because you’re
effectively doubling your investment immediately (if your employer doesn’t
match, however, then I would avoid an employer-based retirement account
because there are better, more flexible options available). After the match,
however, I recommend using an investment service like Betterment, or any of
the others I’ve mentioned, because they give considerably more flexibility,
control, and guidance, and thus a greater return on your investment compared
to most 401(k) plans, which are usually terribly limited. Personally, because my
company is a small business (an LLC partnership with only a few employees), we
established an SEP-IRA through Vanguard—our company went to Vanguard
directly because Betterment allows only individual accounts (no business
accounts). Much like a 401(k), SEP-IRAs are often adopted by small business
owners to provide retirement benefits similar to a pension plan for the business
owners and their employees.
 Tactic 6. Contributing to Others. Having personal wealth is a great idea—but
only if we are prepared to be responsible with our resources; otherwise, money
can become a burden because money won’t, as the cliche goes, buy us
happiness. Sure, it will purchase myriad comforts, but comfort and happiness
aren’t necessarily synonymous (in fact, comfort often keeps us from true
happiness). Although The Minimalists had a breakthrough year last year (a
bestselling book, a 100-city tour, etc.), Ryan and I decided to pay ourselves
considerably less money than our business generated, opting instead to invest in
other people and causes. We could do this contently only after ensuring our own
financial house was in order, which enabled us to save more than 20% of our
personal incomes while still contributing a considerable amount—well over 20%
of our business revenue—to others. Giving is living: let’s build wealth so we can
give more and live more.
5 Investments to Avoid
Whether you use my tactics or not, I’d be remiss if I didn’t warn you about the
investments I avoid.
1. Cash-value life insurance. Cash-value plans, such as whole-life or
universal-life, are horrible investments. Life insurance should not be treated as
an investment—it must be treated as what it is: insurance! If you have
dependents, then yes, you need life insurance (unless you are wealthy enough to
self-insure), and your best bet is always term-life insurance. Additional reading:
The Truth About Life Insurance.
2. Individual stocks. Unless you are an expert day trader, individual stocks
pose too much risk to the average investor. Even if your employer offers a
“special” rate for their stock, I wouldn’t invest my money into any single stock,
not even reputable stocks like Apple or Google: it’s simply too high-risk for my
taste. I want my money to grow over time, preferring to “get rich slowly” over
“get rich quick,” the latter of which usually leads to a perilous outcome.
3. Gold, silver, and precious metals. Like individual stocks, these metals
are too fraught with risk when compared to index funds. Even worse, gold and
silver are commodities—commodity prices are often manipulated by speculation
rather than supply and demand. Additional reading: The Gold Market Is Losing
Its Glitter.
4. Annuities. Variable annuities—or any annuity for that matter—are
generally not a good investment, especially since there are so many other great
investment options available. More often than not, annuities are rife with fees
and penalties and surrender periods, not to mention low rates of return. Yuck!
5. Low-interest-yielding investments. If you’re investing for greater than
five years, then low-interest-yielding investments, such as CDs, savings accounts,
individual bonds, and the like, are poor investments because the interest earned
usually doesn’t outpace inflation. These are great options, however, if you’re
saving for less than twelve months because they reduce your overall risk.
Invest in Yourself: 3 Tips to Get Started
By this point, you should have some financial clarity and a noggin full of good
ideas—so don’t leave the scene of a good idea without taking action! You need
momentum if you want to keep going. Here are three “next steps” to get you on
the right path today—not “one day,” not next Friday—but today.
1. Investment account. Using Betterment or another online broker, set up
an account today. Even if you don’t have a single dollar to commit until next
week or next month, that’s okay. Establishing a free account is a proper first
step.
2. Start small and automate. Beginning with your next payday, automate
regular deposits directly from your checking account. Start small: you won’t
notice a 2% pay cut. Every month or so, increase your contribution by 1%. Within
a year, you’ll slowly ratchet up to nearly 15% of your pay, which is a great place
to be. I employed this strategy in my life, slowly increasing my percentage 1% at
a time, and I now save at least 20% of my income (often considerably more than
20% by making additional deposits whenever I run into additional money). Build
your Safety Net first, and then start investing into your Retirement Savings
bucket as soon as you have at least $500 in your Safety Net bucket.
3. Public accountability. Once you have an investment account
established, and have started contributing to it (no matter how little), share your
newfound vigor with the world around you: tell a loved one, family member, or
trusted coworker (someone who will congratulate you rather than judge you). If
you like, you can share this article on social media or with coworkers to spark a
discussion in your immediate circles. Discussing your financial objectives with
other people helps you keep yourself on track.
Conclusion: Best Financial Advice
There is no single “best way” to plan for your financial future; rather, there is an
entire landscape riddled with peaks and valleys you must navigate. It is my
desire this how-to guide acts not as advice (which it’s not), but as a roadmap to
help you on your journey toward a financially secure future.
If you walk away from this essay with only one takeaway, I hope it’s this: start
today. Don’t let your crastination turn pro.
Whether you use Betterment, Wealthfront, or your own personal broker to
manage your money, the most important thing to do is get started. According to
the ASPPA, the largest indicator of retiring with wealth is not your financial
philosophy; it’s not your suit-n-tie, slick-talking broker; it’s not even your rate of
return—the primary indicator of having money when you retire is your savings
rate. That’s right: putting money away—starting today—is the best route to
financial freedom during retirement.
While I am not a financial advisor, it is my aspiration the financial tools and
strategies shared in this article will give you the push you need to get started
and feel confident in your financial future. I wish you way more than luck.