The Motley Fool's tips for a comfortable retirement.
Determining a 79-year-old gain
Q: If I had put $1 in the market after the crash of 1929, how much would it be worth today?
A: Not everyone realizes it, but the crash of 1929 really occurred over several months, not hours. The Dow Jones industrial average peaked in early September 1929, at 381.
It then slid down to 199 in mid-November, before rising again to 294 five months later, in 1930. (In October 1929, it slid more than 11 percentage points on two successive days.) From there it began a long descent, falling to 41 in July 1932.
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With the Dow recently around 9,000, it’s up nearly 220-fold since the low of 41. That’s enough to turn your $1 into $220.
Want a comfy retirement? Here are some resolutions to help you achieve one:
Save more. In 2008, the annual contribution limit for 401(k), 403(b) and 457 plans is now as much as $15,500 (plus an additional $5,000 for those 50 or older, if their employers permit that), and IRAs can now absorb $5,000 per year ($6,000 for those 50 or older). Increasing your annual savings by $1,000 is just $83 a month but can add up to $50,000 over 20 years and $125,000 over 30 years (assuming an 8 percent annual return).
Consume less. Cut out just $30 per month (a dollar a day), and add that money to your savings — growing at just 6 percent, it would top $30,000 in 30 years.
Stop borrowing your retirement. Your portfolio will never replace your paycheck if your assets aren’t growing faster than your liabilities. Eliminating high-interest debt (such as that from credit cards) should be the No. 1 priority of your retirement plan.
Turn hobbies into incomes. Is there some activity you enjoy that can generate extra money for you now or in retirement? Earning more now (perhaps by teaching, writing or even working a few hours at Home Depot) could increase your savings and move up your retirement date. Having a part-time job in retirement also offers benefits.
Run the numbers. Though many people are eager to retire, most haven’t calculated how much they’ll need to retire. Visit our online calculators at www.fool.com/calcs/calculators.htm”>www.fool.com/calcs/calculators.htm to see where your current plan will lead.
Allocate your assets. Any good retirement plan involves deciding how much you’ll have in stocks, bonds, real estate and cash, and how often you’ll adjust your mix. Saving money is a big first step, but where you put that money is a crucial next step. Nothing has a greater impact on your portfolio’s ability to support your retirement than your asset allocation.
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