HOW TO PLAN FOR RETIREMENTByJoshua Fields Millburn

Youth is wasted on the young. Often, moneyis, too.Back in my corporate days, when I managed scores of retail stores and hundreds of employees, I stressed the importance of planningfor retirementas well as saving for future goalswith every person I hired. Before the start of their very first shift, I would sit down with each new team member and show them how to save for retirement without stress, worry, complexity, or pain. Within a few minutes, I could literally see the difference in their physiologyas trepidation drained from their facial features and, after we spent 30 minutes examiningtheir options, confidence began to take over once they realized planning for retirement is much simpler than they thought.Most of these employees hadnt given much thought to saving for the future: maybe theyd heard their parents or spouses maunder about stocks and bonds and mutual funds, but they hadnt considered whichpathto take because planning for the future, especially with respect to finances, is overwhelming, daunting, boring. There are so many options, so many so-called experts, so many ways to screw things up. So, like many of Americans, they stood stuck in analytical paralysis, opting instead topostponethe decision for another time in some nonexistent hypotheticalfuture. You know, one day.One day: these two words are dangerous because they give us an excuse to shelve important decisions that radically influenceour future. Waiting for one day to arrive doesnt solve the problemit makes it worse. Each day we wait, the worse it gets.Just as withmy employee orientations of yesteryear, I want this essay to serve as an inspirational and informative sit-down in which I clear the fog of decision-making and help you, the reader, make an informed decision based on what Ive done withmy own financial future. I truly believe thatafter reading thisstep-by-step process, you can plan for retirement in less than an hour.Using screenshots and my personal finances as a concrete example, I provide the necessary tools and a step-by-step strategy for you to quickly understand how easy it is to begin saving for retirement, regardless of where you standon the socioeconomic ladder. Not onlyretirement, thoughI also want to help you save for other future objectives: establish a Safety Net emergency fund, build wealth with smart investments, and own your house outright, if thats a dream of yours.And most importantI want itto besimple,because I know, based on years of experience, if I can make the complex conceptof retirement planning simple, then you have a much better shot at getting started immediately.Ultimately, I hopeto eliminatethe fear of financial planning and help you realize its simpler than you think.7 RETIREMENT MYTHS DEBUNKEDBefore I get to my examples, Ill allay yourfears by addressing a fewof the worries Ive heardthroughout my years of helping others set up retirement accounts:Myth 1. Im too old to save for retirement. I frequentlyhired employees who were older than I wasoften in their forties and fiftieswith no retirement-savings plan. Fear had long ago set in, and they figured it was too late. They were stuck; they had missed their opportunity. Not true. While its true that youre better off startingat age 25 than 50, it is also true youll be better off starting at age 50 than, say, 70. Then again, 70 is a better start than 90, isnt it? The past is the past. We must stop peering at the rearview and instead look ahead toward the horizon. As longas youre still breathing,its never too late to start. Its never too early, either.Myth 2. Im too young to save for retirement. Too young? Are you insane? If youre younger than 30, you have it made! Young people, no matter your tax bracket,have a significant opportunity to becometruly wealthy thanks tothe power of compound interest. Someone who invests $25,000 by age 25, with a 12% rate of return, willhave more than $2 million by age 65even if he or shedoesnt add anotherdollar after age 25. Conversely, if that same person waits until age 30, he or she will have to contribute more than three times as much to achieve the same outcome. The lesson? Compound interest is the best way to grow your money over the long haulso start while youre young. To visually illustrate the difference between starting at age 25 vs. 35, check out thisBusiness Insidergraph:

Myth 3. I dont make enough money to save for retirement. Actually, there is no reason you shouldntretire amillionaire. Thats right: virtually everyone, even minimum-wageearners, has the opportunity to bea millionaire when they retire. It sounds too good to be true, but the math proves otherwise: a 25-year-old who sets asideonly $23 per week will retire with more than a million dollarsif the money is invested properly (12% rate of return). Okay, so maybe youre not 25 anymoreme, either! Thats all rightus older folkssimply need to adjust accordingly.Bettermenthas a wonderfully intuitive investment-and-retirement calculator to help you understand exactly how much money you need to savebased on your age andfinancial objectives.Myth 4. Inflation will hurt my retirement nest egg. This is the only myth that is partially true; however, its truth is irrelevant. While it is true $100dollars ten years from now will probably possessless buying power than $100 today, the flip side of that coin is also true, and considerably more important: your$100 ten years from now will be worth infinitely more than your friends $0 invested. In fact,solid investments are the only way to outpace inflation. It is better to invest your $100 than keep it in a bank or under your mattress.Myth 5. Id rather spend my money on something else. When intentions are good, this excuse occasionally sounds like the most compelling reason to avoid saving for the future. True, we sometimes cling selfishly to money, using our income to purchase superfluous trinkets of ostensiblesuccess (new cars, shinygadgets, accoutrements of consumerism), but frequentlywe want to use our money to contribute beyond ourselves (charities, nonprofits, and loved-ones in need). Contributing to others is certainlyadmirable, and I believegiving is living, so Iwant you contribute generously, but Ive found the best way to help others is to help yourself firstthe best way to give generously is to have more to give. Investing in yourselffirsthelps you flex your giving muscle. Theres a reason airlines tell you to secure your own oxygen mask before helping others: if its easier to breathe, its easier to help people in need.Myth 6. The stock market isnt safe. Translation: youdont understand the stock market. Thats okay: I dont completely understand the stock market, eithernot intimately anyway (I am not a financial advisor, nor do I play one on the Internet). The only people who must have an advanced understanding of the stock markets intricacies are stock brokers, day traders, and fund managers. Rather than allocatingseveral hours a day to learnthe nuances of mutual funds, index funds, and individual stocks, I chooseto use an investing service that takes the guess work out of investing. Itis true any investmentintroduces risk into the equation, but long-term investing inthe stock market has proven to be the best way to grow your retirement savings: over the last 25 years, including 2008s steep decline and subsequent Great Recession, the market has averaged a rate of return of nearly 11%. Even when you account for1929s Great Depression, the markethas averaged greaterthan9% growth over the past 100 years (source:Morningstar). Investing in the market is the most stable good-growthinvestment one can make in the long-term, especially when using online tools that help you outperform the market, manyof which are discussed in this essay.Myth 7. I dont have enough time or knowledgeto manage my retirement savings. Its true you and I willlikely never have as much financial wisdom as the experts, but thats precisely why we must seek out tools developed by trusted, reputable experts. Although Im usuallya do-it-yourself kind ofguy, I dont DIY my investment strategy; rather, I did my research and foundonline investment tools that allow me to control my money without being overly controlling. I dont want to constantly scrutinize my investmentstweaking and reacting out of fear every time the market goes up or downbut I dont want to fly blind, either. Rather than flying the plane myself, I put the best possible pilot in the cockpit. Thankfully, after muchdue diligence, I found the online investment software best for me:Betterment.ONLINE INVESTMENT TOOLSI manage the vast majority of my personal finances usingBetterments easy-to-use online software.Of course, Betterment isnt the only game in townthere are plenty of viable options: Wealthfront, Vanguard, Fidelity, Charles Schwab, and a slew of others. However, when comparing Betterment vs. Wealthfront vs. Vanguard vs. Fidelityvs. Schwab vs. a bunch of other reputable online brokers, there were a handful of important reasons I chose Betterment as my online broker: Easy to use. Because I avoid complexity, I knew whichever online-investment firm I chose, it had to be easy to use. Ive used online software from many of the biggest investment firms in the world, and I can say, without a doubt, Betterments website is the best Ive seen. Their online and mobile interface is beautiful, simple, elegant, easy to navigate, and easy to understand. Reputation. Betterment is the largest online automated investment service for a reason. Theirportfolio is designed to achieve optimal returns at every level of risk. Through diversification, automated rebalancing, better behavior, and lower fees, Betterment customers can expect 4.3% higher returns than a typical DIY investor. No-cost setup and low fees. I am not a millionaire (at least not yet), so I cant afford towaste money on setup costsand fees. Unlike many investment firms, Betterment does not charge to sign up for their service. That is correct: itsabsolutely free to establish a Betterment account. Better yet, their fees are the lowest Ive foundprofoundly low. I remember paying 300 basis points (3.00%) to my previouslocal broker, but now I pay only 15 basis points (0.15%). No, thats not a typo: my fees are 20 times lowerwith Betterment. This is especially relevant considering the power of compound interest. By not charging for trades or transactions, Betterment managestheir customersportfolios for far less than it would cost at even a discount brokerage; plus, theirfees only getloweras your assets grow. Not only for retirement. As youll see in the following Savings Strategy section, not only do I use Betterment for my retirement planning, but I also use it to house separate accounts for my personal Safety Net, Wealth Building, and House Fund. By deferring a little money from my checking account to my Betterment account each month, I keep myselfsafe from spending temptations. Because my money is invested appropriately, itgrows more than it would were it sitting in checking or savings accounts. Vanguard index funds. Vanguard, a company well-known for its integrity, has been the best place to invest in high-yield index funds for nearly 40 years. What are index funds?Index fundsaim to replicate the movements of an index of a specific financial market (for example, the S&P 500 is a popular index), so its like investing your money in an entire index, as opposed to mutual funds, which pool money from many investors to purchase a limited number of stocks. While there is a slightly higher potential upside formutual-fund investments, I prefer index funds because of their considerably lower fees, relative stability, and reliability. I have used Vanguard for both personal and business investments in the past, and thats one of the primary reasons I chose Betterment: Betterment is essentially a well-built storefront for Vanguard, which I trust. So, with Betterment, I get the best of Vanguard plus at least three additional Betterment benefits:. AutomaticPortfolioRebalancing. Remember that 90scookware infomercial: Set it and forget it!? Well, I have very little desire to learn the mechanics of portfolio rebalancing and dividend reinvesting, but with Betterment, everything is automatedeven deposits, if youd like. Once I established my Betterment account, I was able to effectively set it and forget it. Sure, I still check in quarterly to take a peek at my financial growthwhich is pretty cool because their web-based interface is beautifulbut I know the best strategy, once everything is set up, is to let the money grow and grow and grow without fooling with it.. Tax-loss harvesting.Tax-loss harvesting is the practice of selling a security that has experienced a loss. By realizingor harvestinga loss, investors are able to offset taxes on both gains and income. The sold security is then replaced by a similar one, maintaining the optimal asset allocation and expected returns. Basically, Betterment systematically finds embedded capital losses to lower investment taxes and increase after-tax returnsand they do this forfree, which is pretty cool. (Note: I logged into my account today and saw Ive had $57.89 in losses harvested in the first three months of this yearoutstanding!). Beautiful interface. See Easy to use above. Betterments website, be it in a web browser or on a mobile device, is a joy to use, which takes all the clunkiness out of old-time paper-trail investing. Easy rollovers. Rolling over a 401(k) from a former employer can help you take control of your retirementthats what I did with my old Fidelity 401(k) account: I rolled it into a Traditional IRA. Betterment offers rollovers that take less than a week on average, and they have rollover concierge available to assist you every step of the way, which made my rollover simple. (You can rollover other accounts, too: 403(b), 457(b), Traditional IRAs, Roth IRAs, andother similar retirement accounts.) Diversity. Betterment uses years of investment research to construct a globally diversified, passive portfolio based on Modern Portfolio Theory. Their customers own exchange-traded funds (ETFs) representing up to 12 asset classes. In plain English: diversification is the key to properly managing your wealth through market upswings and downturnsBetterment provides this diversity. Free resources. For the casual investor like myself (read: non-expert), I appreciate the plethoraof easy-to-absorb financial advice Betterment regularly doles out. Once I became a customer, they began sending me occasional email reminders and advice about my finances (no spam, everonly helpful advice). It is the first time I can remember enjoying reading about financesbecause they made it easily digestibleand applicable to my personal situation.Todays technology is making investing easier, safer, and simpler than ever. You used to have to hire a local broker and hope he or she had your best interests in mind. While theres nothing inherently wrong with alocal-broker approach (there are many wonderful brokers out thereIve dealt with several), Ive found that I feel more informed, more confident, more focused, and more secure with the advanced tools available from a well-run online investment firm like Betterment; plus, Im grateful to pay considerably lower fees, which helps my money grow more quickly (remember the power of compound interest).To be as transparent as possible, not only am I sharing my financial information in this article (including screenshots below), but its worth notingThe Minimalistsis an affiliate partner forBetterment. So, if you find value in this article, and you decide to invest with Betterment,The Minimalistsreceives a small referral fee; however,that is not why I recommend their services (all of their competitors offer similar referral programs). I recommend Betterment because, after much research, I personally usetheir firm to manage the vast majority of my money. My experience has been outstanding thus far, and if that ever changesalthough I doubt it willIll update my viewpoint here atTheMinimalists. I have trusted Betterment with my future, so you better believe I will continue to hold them to a high standard.6 TACTICS:JFMS SAVINGS STRATEGYThe best way for me to help you save for the future is to show you my recipe, that is, how I manage my own finances step by step: this way you can follow the entire recipe or select ingredients that work best for you.Strategy Overview: Of the sixtactics listed below, I useBettermentto manage the first four: Safety Net, Traditional IRA, Build Wealth, and House Fund. Here is a screenshot overview of my Betterment account fiveweeks into the calendar year 2015:

Now, looking at onlythe numbers, its easy for me to say, Wow! That guys loaded!Wellnot exactly.First, if I were to retire today, $176k wouldnt be enough money because, ideally, one wants to have enough saved to live off the interest, pay taxes, and outpace inflation. Thus, if I wanted to bring home, say, $30,000 a year, Id need to have approximately $500,000 saved, earning 12% interest (2% for inflation, 4% for taxes, and the remaining 6%$30,000for income).And second, of course,Imnot loaded. I dont view this money asmymoney at all; instead, I look at it as an investment in my future self: it is my future selfs money. Im not allowed to touch it. Besides, it didnt happen overnight: Ive been investing for nearlya decade, slowly contributing a percentage of my income each month with unwavering conviction. Even when incomehas been low, Ive made sure to pay my(future)self first by investing in my retirement account and ensuring I have a Safety Net for emergencies.The following six tactics outline exactly how I save for the future and plan for retirement. (By the way, as Ryan and I discussed on ourTEDx Talk, we certainly dont believe wealth directly correlateswith a rich life; that doesnt mean having money is wrongits notit simply means money is not the primary driver for my life. But with the money I do earn, I want to invest responsibly.)Tactic1. Safety Net.Before planning for retirement, it is best to plan for emergencies.Lifehappens, so we must create an initial Safety Net bucket containing$500$1000, invested conservatively to avoid downturns in the market. Warning: do not touch this money unless there is a true emergency (e.g., car repairs, home repairs, job loss, medical bills, and otherrealemergencies). In fact, this is why I keep my Safety Net in a Betterment bucketinstead of in my checking or savings: by removing it from my regular bank account, Im less tempted to use that money unless its an actual emergency, plus I still have quick access to the money should I ever need it.Over time,once youre out of debt, your Safety Net will grow to include several months of expenses(after years of saving, my Safety Net now has a years worth of expenses and I no longer contribute to that bucket). But for now, worry only about the first $500$1000 to start. Once youve built your initial Safety Net, you can begin piling cash into your Retirement Savings.

Tactic2. Retirement Savings (IRA). Of my four Betterment buckets, I use aTraditional IRAas my primary Retirement Savings bucket. As you can see from the screenshot below, the majority of my money is kept in a Traditional IRA, which is balanced aggressively toward stock-based index funds. As a Betterment customer, I can drill down to the individual index-fund level if I feel inclined tomake adjustments to individual investments accordingly; although, in most cases, I allow Betterment to recommend theparticular funds in which I should invest since they are the experts. Instead of a Traditional IRA, youcan also opt for aRoth IRA(or both if youd like). The main difference between thesetwo types of IRAs is that Traditional IRAs contributions are pre-tax (thereby lowing your annual taxable income), while Roth IRAs contributions are after-tax (which makes them tax-free upon retirement, provided certain criteria are met). Both IRA options are available through Betterment. I chose a Traditional IRA because I rolled-over a large 401(k) from my previous employer. (Note: well address 401(k)s, SEP-IRAs, and other similar employer-based retirement accounts in Tactic 5.)

Tactic3. Build Wealth. Because theU.S. government allows people to contribute only up to a certain amount to an IRA each year, I deposit any additional retirement savings into a Build Wealth bucket, which is set with the same aggressive-growthconfiguration as my Traditional IRA, although the money in this bucket is invested post-tax; thus, you need only establish a Build Wealth bucketif youve first maxed out your tax-advantaged IRA contributions. (Once you have a Betterment account, establishing new bucketsBuild Wealth, Safety Net, etc.is easy: just a few clicks and you have a new bucket.)

Tactic4. HouseFund. One might say Im debt adversebut that is an understatement. I hate debt! From my viewpoint, after experiencing crippling debt for over a decade, there is no such thing as good debt. Sure, some debt, such as a mortgage, is better than other debts, such as, say, a creepy payday lenderbut just because it is sometimes tolerable, debt is never a good thing. Hence, although Ive been a homeowner before (well, technically the bank owned the home and I paid the mortgage), I currently rent an apartment and save additional money into my House Fund bucket, which is adjusted more conservatively than my Retirement Savings and Build Wealth buckets because the House Fund bucket is ideally a shorter-term investment (fewer than five years). For some people, this bucket is a great way to amass a reasonable downpayment on a home (a 20% or greater downpayment allows the borrower to avoid pricey Private Mortgage Insurance). For me, however, this fund is there so when I decide to finally purchase another house, I will do so in cash. As you can see, I have a long way to go, but I know it will be worth it.

Tactic 5. Employer Contributions. If your employer offersan employer-matching,tax-qualified, defined-contribution pension account, such as a401(k)(or 403(b) or 457(b) if you work for a nonprofit or government entity, respectively), then it is best to contribute to your 401(k) up to the employers matching amount. For example, if your employer matches your contributions up to 3%, then I encourage you to contribute 3% of your income because youre effectivelydoubling your investment immediately (if your employer doesnt match, however, then I would avoid an employer-based retirement account because there are better, more flexible options available). After the match, however, I recommend using an investment service like Betterment, or any of the others Ive mentioned, because they give considerably more flexibility, control, and guidance, and thus a greater return on your investment compared to most 401(k) plans, which are usually terribly limited. Personally, because mycompanyis a small business (an LLC partnership with only a few employees), we established an SEP-IRA throughVanguardour company went to Vanguard directly because Betterment allows only individual accounts (no business accounts). Much like a 401(k),SEP-IRAs are often adopted by small business owners to provide retirement benefits similar to a pension plan for the business owners and their employees.Tactic 6. Contributing to Others. Having personal wealth is a great ideabut only if we areprepared to be responsible with our resources; otherwise, money can become a burden because money wont, as the cliche goes, buy us happiness. Sure, it will purchase myriad comforts, but comfort and happiness arent necessarily synonymous (in fact,comfort often keeps us from true happiness). AlthoughThe Minimalistshad a breakthrough year last year (a bestsellingbook, a 100-citytour, etc.), Ryan and I decided to pay ourselves considerably less money than our business generated, opting instead to invest in other people and causes. We could do this contentlyonly after ensuring our own financial house was in order, which enabled us to save more than 20% of our personal incomes while still contributing a considerable amountwell over 20% of our businessrevenueto others.Giving is living: lets build wealth so we can give more and live more.5 INVESTMENTS TO AVOIDWhether you use my tacticsor not, Id be remiss if I didnt warn you about theinvestments I avoid.1. Cash-valuelife insurance. Cash-value plans, such as whole-life or universal-life, are horrible investments. Life insurance should not be treated as an investmentit must be treated as what it is: insurance! If you have dependents, then yes, you need life insurance (unless you are wealthy enough to self-insure), and your best bet is always term-life insurance. Additional reading:The Truth About Life Insurance.2. Individual stocks. Unless you are an expert day trader, individual stocks pose too much risk to the average investor. Even if your employer offers a special rate for their stock, I wouldnt invest my money into any single stock, not even reputable stocks like Apple or Google: its simply too high-risk for my taste. I want my money to grow over time, preferring to get rich slowly over get rich quick, the latter of which usually leads to a perilous outcome.3. Gold, silver, and precious metals. Like individual stocks, these metals are too fraught with risk whencompared to index funds. Even worse, gold and silver arecommoditiescommodity prices are often manipulated by speculation rather than supply and demand. Additional reading:The Gold Market Is Losing Its Glitter.4. Annuities. Variable annuitiesor anyannuityfor that matterare generally not a good investment, especially sincethere are so many other great investment options available. More often than not, annuities are rife with fees and penalties and surrender periods, not to mention low rates of return. Yuck!5. Low-interest-yielding investments. If youre investing for greater than five years, then low-interest-yielding investments, such asCDs, savings accounts, individual bonds, and the like, are poor investments because the interest earned usually doesnt outpace inflation. These are great options, however, if youre saving for less than twelve months because they reduce your overall risk.INVEST IN YOURSELF: 3 TIPS TO GET STARTEDBy this point, you should have some financial clarity and a noggin full of good ideasso dont leave the scene of a good idea without taking action! You need momentum if you want to keep going. Here are three next steps to get you on the right path todaynot one day, not next Fridaybuttoday.1. Investment account. UsingBettermentor another online broker, set up an account today. Even if you dont have a single dollar to commit until next week or next month, thats okay. Establishing a free account is a proper first step.2. Start small and automate. Beginning withyour next payday, automate regular deposits directly from your checking account. Start small: you wont notice a 2% pay cut. Every month or so, increase your contributionby 1%. Within a year, youll slowly ratchet up to nearly 15% of your pay, which is a great place to be. I employed this strategy in my life, slowing increasing my percentage 1% at a time, and I now save at least20% of my income (often considerablymore than 20% by making additional deposits whenever I run into additional money). Build your Safety Net first, and then start investing into your Retirement Savings bucket as soon asyou have at least $500 in your Safety Net bucket.3. Public accountability. Once you have an investment account established, and have started contributing to it (no matter how little), share your newfound vigor with the world around you: tell a loved one, family member, or trusted coworker (someone who will congratulate you rather than judge you). If you like, you can share this articleon social media or with coworkers to spark adiscussionin your immediate circles. Discussing your financial objectives with other people helps you keep yourself on track.CONCLUSION: BEST FINANCIAL ADVICEThere is no single best way to plan for your financial future; rather, there is an entire landscape riddled with peaks and valleys you must navigate. It is my desire this how-to guide actsnotas advice (which its not), but as a roadmap to help you on your journey toward a financially secure future.If you walk away from this essay with only one takeaway, I hope its this:start today. Dont let your crastination turn pro.Whether you useBetterment,Wealthfront, or your own personal broker to manage your money, the most important thing to do is get started. According to the ASPPA, thelargest indicatorof retiring with wealth is not your financialphilosophy; its not your suit-n-tie, slick-talking broker; its not even your rate of returnthe primaryindicator of having money when you retire is yoursavings rate. Thats right: putting money awaystarting todayis the best route to financialfreedom during retirement.While I am not a financial advisor, it is my aspiration the financial tools and strategies shared in this article will give you the push you need to get started and feel confident in your financial future. I wish you way more than luck.