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3 Retirement Variables You Can Improve

David Ning
Financial Advice for 20-Somethings: Retirement Savings

Play around with retirement calculators enough and you will probably wish you could change your savings rate, investment returns or inflation in your lifetime. After all, a seemingly tiny improvement in these numbers will drastically increase your chances of securing a comfortable retirement. Fortunately, there are ways that you can actually change these three variables in order to improve your retirement security:

You can definitely save more. Trying to get people to save more is probably the suggestion I get the most push back on. Many people mistakenly think they are already doing everything they can to save, and any more cuts will become a sacrifice. The reality is that there's fat in everyone's budget, and the easiest way to reduce your spending is to challenge every assumption you've built over the years. Do you actually need cable TV when you can get just as much entertainment value out of a Netflix subscription? Is your smart phone worth paying $100 a month? Can you rearrange how you consume food by buying more of specific food groups whenever they are on sale and less of the ones at full price? Small changes make a huge difference over time.

And don't forget the other side of the savings equation: earning more money. Your nest egg won't care if the extra money comes from reduced spending or increased income. Can you turn a hobby into a small side business? Can you make crafts and sell them on eBay? Are you a prolific writer who could make a bit of money writing online? The Internet makes all kinds of small ventures possible because the medium has drastically reduced the need to spend significant capital to start and maintain a client base. Don't waste the opportunity.

You might be able to improve your investment returns in retirement. The equity markets are volatile and almost impossible to predict. That's why I often recommend low cost index funds for just about everyone. While it may be possible to beat the markets through individual stock selection, the odds of an individual outperforming the market are so slim that it's not a logical bet. But even if you are invested in index funds, it doesn't mean you can't try to increase your chances of a comfortable retirement by improving the odds of higher investment returns.

Numerous studies have shown a correlation between future returns and current valuations. While you can't control what the price-to-earnings ratio of the market will be at any point in time, you can find out what it is with precision anytime you want and adjust your retirement date accordingly. Obviously, this strategy works better if you are saving more than the minimum amount you will need to retire, which gives you flexibility on when exactly to retire. By shifting your retirement date, you can increase the odds of never completely depleting your nest egg.

Even the inflation rate can be tamed. Safe withdrawal rate studies assume you will increase your withdrawal amount by the official inflation amount each year, but you don't have to take more out every year unless you are really planning to spend more. You won't be able to alter the CPI, but you could change your personal inflation rate. Prices on many things will increase over time, like health care, food and gas. But there are also costs that won't increase at a rate like inflation, such as a fixed-rate mortgage payment or HOA dues. A few costs may even decrease, such as the costs of electronics purchases. By closely monitoring spending and adjusting your spending habits in a smart way, you won't necessarily have to increase your budget by the inflation amount every year. If you can knock the inflation increases down by even 1 percentage point, you will drastically improve the chances you will retire comfortably.

It goes without saying that life is unpredictable, and you cannot eliminate every risk out there. But you do have more control than you probably think, even over things like stock market returns and inflation.

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