Four steps to a richer retirement

Take a quick survey of the retirement landscape and things look pretty darn dire.

According to a survey conducted by Wells Fargo last month, the average American has managed to save a meager 7 percent of the amount they’d like to have in their Golden Years.

That fact alone is bad enough. But what’s worse is that I think even their “ideal” amount is WAY too low!

The average “middle class” survey respondent said they would need $300,000 to fund their retirement. Keep in mind, this is how Wells Fargo defined “middle class” …

• Ages 30 to 69: Household income between $40,000 and $100,000 or investable assets of $25,000 and $100,000
• Ages 25 to 29: Household income or investable assets between $25,000 and $100,000

If we take the median of this definition, we get a household making about $70,000 a year and with a nest egg worth $62,000 or so.

Let’s imagine there are two adults in the home, roughly 50 years old each based on this survey.

Even if they’re not carrying any serious debt, they haven’t managed to save anywhere near their targeted amount … so it’s safe to say they’re spending almost all of their annual income as it comes in.

Now, are they likely to slash their expenditures as they continue to age? And is it reasonable for them to expect health care costs, energy prices, and food bills to stay what they are today?

I’d say no to both of those questions. Yet even their magical target of a $300,000 nest egg represents just a bit more than four years of their current expenditures.

No wonder one in every three respondents also said they will have to keep working during their golden years to support themselves!

I’m probably preaching to the choir here, and I’m sure you’re in much better shape than the typical American retiree-to-be.

At the same time, I think it’s fair to say that there’s no such thing as being TOO prepared or having a nest egg that’s TOO big. Which is why I want to give you …

Four Simple Steps to a Richer Retirement Nest Egg,
Whether You’re Already Ahead or Trying to Play Catch-Up

It doesn’t matter what age you are right now … how much you’ve already saved … or how far away from your goals you are right now. You absolutely want to make sure that you’ve got a plan in place, and that you’re sticking to it.

And the following four basic steps are a great starting point for building a better retirement nest egg without sacrificing safety …

Step #1: Before you do anything else, make sure you have a safe, liquid emergency cash fund.

Sure, I encourage 401(k) participants to at least contribute enough to get the maximum company match. And yes, I implore people to take maximum advantage of other tax shelters like IRAs, too.

But I don’t think anyone should be retirement rich and cash poor!

It simply doesn’t make sense to plow your money into long-term accounts like 401(k)s and IRAs if there’s a chance you may have to withdraw those same funds in short order in the event of an emergency. Not only will you likely be invested in less liquid investments but you could possibly face additional taxes and penalties, too.

So you absolutely want to make sure you have a solid emergency fund in place before you contribute another penny to your retirement nest egg.

Ideally, it will represent a full years’ worth of your current expenses or income but I would recommend three months as the bare minimum.

And even though you’ll get near-zero returns, I suggest keeping your emergency funds in a plain vanilla savings account, Treasury-only money market fund, or similar cash equivalent.

After all, the goal here is maximum safety and liquidity. You never know when you or a family member might need money due to a job loss, illness or busted water heater!

Once you have your liquid fund in place, of course, it’s time to start investing the rest of your nest egg for maximum income and growth …

Step #2: For your U.S. investments, stick mostly to conservative dividend-paying stocks right now.

I’ve said it before, but it bears repeating: With interest rates still near record lows, most bonds, CDs, and money market funds simply aren’t paying enough to warrant owning them in your long-term investment accounts.

Plus, given the fiscal mess here in this country — at the federal, state and local levels! — there is a substantial risk of further losses for many government bondholders going forward.

So if you want the biggest, safest yields here in the U.S., I continue to think conservative dividend shares represent your best option.

As I’ve pointed out time and again — these types of investments not only kick off stable, growing cash streams … they also offer you the chance for long-term investment gains, too.

And even if you don’t to go about picking individual companies, you can always own a broad swath of solid income stocks through vehicles like the PowerShares Dividend Achievers (PFM) exchange-traded fund.

Step #3: Add some foreign dividend shares, too.

It’s no longer enough for us to invest solely in the U.S. — the world is becoming a smaller and smaller place … some economies overseas are expanding at much faster rates than those in the traditional places … and it’s getting more important to diversify your portfolio as much as possible.

This is precisely why I’ve been recommending select foreign dividend stocks even for my own father’s retirement account!

By holding the U.S.-listed shares of foreign corporations you can quickly and easily access new worlds of growth.

Better yet, because your shares (and dividends) are originally priced in foreign currencies, you have the unique opportunity to profit further whenever the U.S. dollar moves lower relative to the listing company’s home currency.

Again, there are even exchange-traded funds that will give you all-in-one-shot access to these global dividend stocks — including the S&P International Dividend ETF (DWX).

And that brings me to a bigger point …

Step #4: Learn all you can about other alternative investments and strategies, too!

It’s important to stay on top of the latest investments that are becoming available … especially if you’re looking for unique new ways to hedge your traditional holdings or for new vehicles to use in the more aggressive part of your portfolio.

Best wishes,

Nilus