Yahoo Finance Warren Buffett, Suze Orman and Other Experts on How To Set Yourself Up for Retirement
Depending on which stage you’re at in life, you may either be thinking very carefully about retirement or not worrying much about it at all.
The financial experts, however, warn that you always should be thinking about retirement; because, if you don’t plan for it, invest enough for it and take it seriously, you’ll be caught unprepared and financially insecure when it is time.
Find Out: Suze Orman’s 5 Social Security Facts Every Soon-To-Be Retiree Must Know
Read More: 4 Genius Things All Wealthy People Do With Their Money
There’s certainly no shortage of advice about how to invest for a successful retirement. However, sometimes it can be hard to know whom to believe. If you don’t have a trusted fiduciary financial advisor, the next best place to get advice is from those who have become multimillionaires themselves.
Popular financial icons such as Warren Buffett, Suze Orman and Jim Cramer have all succeeded at earning and investing money, so it’s worth listening to advice they give general investors. Here’s a look at some advice for a prosperous retirement from some of the most well-known financial pundits.
Follow the 90/10 Investment Strategy
Buffett, the storied “Oracle of Omaha,” has given decades of investment advice to anyone who would listen. One of his most important pieces of advice for general investors, however, has been to invest 10% of available cash into short-term government bonds and the bigger chunk, 90%, into low-cost S&P 500 index funds. He suggests Vanguard’s specifically.
Index funds are linked to the way the S&P 500 performs — the S&P 500 are the 500 biggest public companies in the U.S. When the S&P 500 does well, so does the index fund — and thus so does your investment.
Buffett has always had little faith in the ability of active money managers to outperform the S&P 500 index, so he has even instructed his trustee to invest 90% of his estate in index funds after he dies.
Discover More: Social Security 2024 — 6 Changes That Impact Your Benefits
Explore More: 8 Ways Middle-Class People Become Poor in Retirement
Raise 401(k) Contributions to 10% to 15%
Savvy money matron Orman knows her financial advice. She urges people to strive for a minimum contribution to your 401(k) of 10% of your salary. That’s the minimum. She thinks 15% is a wiser investment. However, if you can’t get there, then increase your contribution rate by at least 1% every year and work your way up. Better yet if you have employer matching.
On her blog, she says, “Don’t tell me you can’t afford it. You can’t afford not to do this.”
Find Out: 7 Bills You Never Have To Pay When You Retire
Avoid Credit Card Debt
How can avoiding credit card debt set you up for retirement? By freeing up funds that you can use for savings and investment.
According to Mark Cuban, “Racking up credit card debt is the worst investment you can make.”
Any amount you have to pay in credit card interest is just wasted money that could have instead been used to fund your retirement accounts. The average interest rate on credit cards is around 20%. If you carry a $10,000 balance, for example, you’re paying $2,000 per year in interest that could instead be used to invest for retirement.
Cuban is OK with people having and using credit cards — after all, they do potentially help you earn good credit — so long as they pay them off by the end of the month.
Saving for Retirement Must Be Consistent, Not Complicated
Financial personality Dave Ramsey is a big believer in keeping things simple when it comes to saving for retirement. According to Ramsey, it’s far more important to invest consistently than it is to find some arcane “get rich quick” scheme to hit your retirement goals.
Ramsey recommends investing only when you’re ready financially, and that you never invest in something that you don’t understand. Under Ramsey’s retirement savings plan, the best way to reach your goals is to set aside 15% or more in Roth IRAs and pretax retirement accounts, to max out your 401(k) each year and consider things like investing in real estate.
To hit your retirement savings goals, Ramsey recommends investing in growth stock mutual funds with at least five years of consistent returns.
Understand the Difference Between Investing and Speculating
Kevin O’Leary, known as “Mr. Wonderful” on the popular series “Shark Tank,” has no problem with people who enjoy day trading. However, if you’re looking to have a successful retirement, O’Leary stresses that you’ve got to have a long-term investment plan in place first.
As quoted in The Penny Hoarder, O’Leary said, “My style is to put money aside for my whole life and leave it invested.”
Once you’ve got enough set aside for a financial base, you can use any extra money you have any way you want, including day trading. He also said he took his grandmother’s advice to save 10% of all your income, and he suggests you invest it in the market.
“It’s a mantra of mine that everybody can save because there’s just so much stuff you buy that you don’t need,” he told Business Insider. “And if you put that money into the market, which generally is giving 6% to 8% a year for the last 100 years, you’ll end up quite wealthy when you retire.”
Check Out: 6 Ways To Lower Expenses in Retirement While Still Living a Luxury Lifestyle
Don’t Retire Too Early
Jim Cramer, the love-him-or-hate-him former hedge fund manager who hosts CNBC’s “Mad Money,” is leery of people who say they’re retiring early.
CNBC quotes him as telling those who plan to retire early “you’re going to pay for it for the rest of your life.”
That’s because you need a whole heck of a lot more money in retirement than you think. So if you retire in your 30s to 50s, you still have to fund all of those decades. Without income coming in, the chances of you being able to live the same level of lifestyle are slim.
Buy Assets That Pay for Your Liabilities
Robert Kiyosaki, author of the famous “Rich Dad” series, suggests that most people are saving for retirement the wrong way. According to Kiyosaki, rather than using traditional savings methods like IRAs and 401(k) plans, investors should be buying assets that generate cash flow and pay for their liabilities.
Kiyosaki says he and his wife “invest in assets that [generate] cash flow like real estate, oil wells, business and more. Each month, cash pours into our accounts from these investments, covering our expenses.”
Kiyosaki refers to this as “printing money,” by finding ways to generate enough cash flow to cover all of his needs.
Open a Roth IRA If No 401(k)
Not everyone’s place of employment offers them a 401(k) retirement option. But Orman says not to worry. You can still set up your own Roth IRA through any reputable brokerage and get free to low-cost advice on which funds to put your money into.
Learn More: These 8 Expenses Can Kill Your Retirement — Should You Ditch Them ASAP?
Stay the Course
Buffett is so full of investment wisdom that every one of the spots on this list could be taken by his recommendations. However, two of his most essential are the one listed earlier — buy index funds — and this one: Stay the course.
As Buffett noted in his 2018 letter to shareholders, “Though markets are generally rational, they occasionally do crazy things.”
According to Buffett, investors need “an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals.” In other words, invest for the long term and don’t get too caught up in the day-to-day emotions of the stock market.
You Should Invest for Retirement Even When You’re Young
When you’re young, it’s easy to think of retirement as something to save for “someday,” since it does feel a long way off.
According to Cramer, that is a mistake. The earlier you start investing, the better off you’ll be in retirement. To his mind, anyone can save or invest even a little no matter their income.
He uses his own younger self as proof of that, telling CNBC that in his early 20s he lived out of his car to save money, but he still invested $100 per month. He said young people just need discipline to achieve this goal.
John Csiszar contributed to the reporting for this article.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Warren Buffett, Suze Orman and Other Experts on How To Set Yourself Up for Retirement
