3 Simple Steps To Take Charge Of Your Retirement

Last week, I ran through some rather grim statistics about the situation a lot of Americans find themselves in with regard to retirement.

If you missed that piece, you can go back here and read it in full. But the long and short of it is this…

After decades of stagnant wages and low savings rates, most Americans find themselves woefully underprepared for retirement. And while it’s nice to have Social Security as a fallback, the truth of the matter is that it’s not going to bail most people out to the extent they think it will…

All of this boils down to one thing: you can’t count on anyone but yourself to achieve a comfortable retirement.

As Chief Investment Strategist of High-Yield Investing, I firmly believe blue-chip, dividend-paying stocks and other high-quality interest-bearing securities remain the best way to achieve that goal.

That’s why today, I want to skip the gloom and doom and focus on offering some solutions. And to that end, I want to take a step back and talk about some of the basic steps investors can take to set their portfolio up for long-term success.

So if you’re looking to get started (or simply need to get back on track) I would start with these three simple steps…

3 Steps To Put Your Portfolio On The Right Track

1. Determine Your Needs
Some people have modest retirement agendas. They might be able to get by on 50% to 60% of their pre-retirement income levels. Others plan to live largeā€¦ golfing, traveling, you name it. In that case, it’s better to plan on needing perhaps 70% to 80% of your former income, or possibly more.

There are other variables that need to be considered, such as anticipated inflation rates (the enemy of anyone living on a fixed income). $50,000 in annual withdrawals might sound ample today, but you can bet it won’t buy nearly as much 20 years from now.

Just to give you an idea, picture a couple in their mid-40s who want to retire at age 60 with $60,000 in annual retirement income lasting until age 78. Ignoring Social Security (we’ll count that as a bonus) and assuming a 4% yield in retirement, they will need to accumulate a starting balance of $990,741 by day one.

It’s not an exact science, and there is no accounting for the unknown. But at least you’ll be making an educated guess as to how much you’ll need to accommodate your expected retirement lifestyle.

2. Start Saving NOW!
Once you know how much cash you’ll need before you can stop punching the clock, the next step is to make a ballpark projection of how much your current portfolio will be worth at that point in time. Be careful about assuming lofty double-digit rates of return.

Despite a sometimes-bumpy ride along the way, the stock market has treated us very well over the past few years. But personally, I wouldn’t count on the market delivering more than 8% annually over the long-haul. If you actually earn more than that, great… you’re ahead of the game. But it’s better to aim lower and beat that than to come up short. If you’ve been a diligent saver until now and continue to save aggressively, then your projected account value might outpace your projected needs.

But for most people, there will be a sizeable gap. Don’t let that be you.

3. Rebalance Annually
You might not realize it, but the biggest determinant of your long-term returns isn’t the individual performance of the stocks, bonds, and mutual funds you select. It isn’t market timing either.

A groundbreaking study involving 94 mutual funds over a 10-year period found that 90% of an investor’s ups and downs are explained by the overall mix and proportion of various asset classes within their portfolio. So the best use of your time is spent on asset allocationā€¦ deciding what percentage to invest in large-cap stocks versus small-caps, growth versus value, domestic versus foreign, equity versus fixed income, cash, gold, real estate, etc.

Your asset allocation strategy should be customized for your unique goals and objectives. As such, providing hand-tailored profiles to thousands of different readers here just isn’t practical. But a moderate-risk allocation for investors in their 50s might look something like this:

  • 30% Investment Grade Bonds
  • 25% Large-Cap Blend
  • 10% High-Yield Bonds
  • 10% Floating Rate/TIPS/Inflation Protected Bonds
  • 10% Global Stocks
  • 5% Real Estate/Commodities
  • 5% Small/Mid-Cap Value

Whatever you decide, it’s important to re-evaluate at least on an annual basis. This is a good opportunity to cut loose any laggards that aren’t performing to your expectations, and also re-align allocations that got out of whack over the previous year.

In most cases, you’ll also want to dial back your exposure to riskier asset classes as you approach retirement. At that point, you should be less concerned with capital appreciation and more interested in capital preservation.

Stick To The Plan

Taking the time to come up with a game-plan is one thing. Having the diligence to stick with it is another thing entirely. But it can mean the difference between a lean retirement and a lavish one. Don’t feel overwhelmed, though; any plan is better than doing nothing. If nothing else, dollar-cost averaging (buying fewer shares when prices are high and more when prices are low) into a solid mutual fund each month can take you a long way.

If you’re looking for more ways to put your portfolio on the right track (including some of my top picks), then you need to see this…

I put together a report for readers who want to “keep it simple”… You’ll find 5 safe, high-yield stocks that you can own for the long-term — picks that are so solid, I consider each one of them to be “bulletproof”. In fact, they’ve weathered every dip and crash over the last 20 years and still handed out massive gains.

With these picks in your portfolio… you may never have to worry about what the market is doing again. Go here to check out my report now.