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November, 2003


It's never too early, so say the promoters of this National Retirement Planning Week, to be thinking about having sufficient resources for one's leisure years.

Now there is more help than ever, both for the worker looking forward to retirement and the retiree seeking to manage his or her nest egg to not only last as long as necessary but hopefully also allow for an orderly estate distribution to beneficiaries or charities. One source of such assistance is the web site, Retire on Your Terms, where one may find a retirement calculator along with related links.

Yet, surprisingly, U.S. workers' average savings rate is quite low, only about 2% of earnings. This would be understandable if we had already saved and invested a large amount toward our retirement goals. But most Americans, though living in the world's greatest economy, instead have substantial debt. The Chinese, by contrast, even with relatively lower standards of living and wages, have little debt and are saving at an average rate of about 40%. It should surprise nobody that, should these trends continue, prospects for China's economy achieving superpower status are now better than for our nation's standards to remain high through the balance of the 21st Century.

As the Retire on Your Terms folks point out, one seldom hears people complaining in later years to the effect: "Darn! I saved too much."

I have a few suggestions. They are simply basic personal finance ideas, but too many ignore or put off such steps.

  1. Let's live below our means. If the Chinese can do it, why not we?
  2. Let's regularly pay off more debt than we incur, until or unless it stands at zero. There are sometimes good reasons for going into debt, of course, but a realistic method for getting out again is essential.
  3. Let's use some of the positive difference between our income and expenses for highly liquid, conservative savings, until we have funds to cover at least six months' worth of expenses, in case of emergency.
  4. Let's also have a plan of regular investing for the long-term. In time, such a plan may provide total returns that exceed what we've been receiving in earnings. When that occurs, what a good feeling!
  5. Let's use all practicable legal means to avoid or defer taxes, for instance by setting funds aside in 401k or SEP employer sponsored retirement plans or in regular or ROTH individual retirement accounts (IRAs). The compounded increase of tax-deferred assets can give a great boost to the retirement nest egg.

In a simplified example, if Investor A starts with $10,000, reinvests all dividends and capital gains, gets an average annual 10% total return, and pays 15% in taxes on the gains each year, then after 30 years he or she would have $115,583.

If Investor B starts with $10,000 in a tax-deferred account, reinvests all dividends and capital gains, gets an average 10% total return, and pays 15% in taxes on a lump sum distribution after 30 years, he or she would have $148,320, a better than 28% advantage.

In my twenties I made a number of severe financial mistakes, piling up debt, quitting a job before having good prospects for a new one, starting over in a new part of the country with no resources, and so on. Only after I had to borrow $40 from one of my brothers to get through the next week did I realize things had to change and begin to stick with a practical monetary program.

There was no secret or magic to that plan. It is contained in the suggestions I offer above. But it works and, in time, can be highly effective. If I could turn around my personal finances (and retire early), most anyone can.

And even a relative novice, as I certainly was, can learn to make good selections among equities or stock mutual funds.

For those who've mastered the fundamentals of Family Budgeting 101 and are simply looking for worthwhile new investment ideas, these five stocks look attractive now, each in my view selling at or below its current per share value:

CompanySymbolRecent Price
Berkshire Hathaway
(Class A & Class B)
Hardinge, Inc.HDNG$10.90
Home DepotHD$35.74
OAO Tatneft (ADR)TNT$18.54
T-3 Energy ServicesTTES$5.31

Good luck with your own retirement planning, and happy investing!


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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