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How to Save for Retirement Even When You’re Earning Meager Income – Advice from Top Personal Finance Expert

Being in your 20s, reaching your retirement age seems a long way to you. But for some people, retirement savings is their top priority. Saving now for retirement means that you will have sufficient money to maintain your standard of living. This will ensure that your lifestyle does not take a hit even when you are out of work or reduce your work hours without constantly checking how much you are left with.

Background on the Finance Expert

Christine Benz, Morningstar’s director of personal finance, has the quality of being analytical and practical. Her analytical side states that the stocks of the U.S. are overvalued. And that is why she instructs investors to invest more in foreign stocks and cheaper U.S. value stocks. While her practical side suggests that Americans should worry about their mortgages or save enough. This will enable them to send their children to college. So, they should seek common-sense solutions that make them sleep peacefully at night.

Words of Advice

Benz motivates retirement savers to take strategic risks to accomplish income goals since her firm predicts that the stocks will generate a meager 1.6% a year over the next year. She, however, also states “peace of mind allocations” like paying off the dues of the mortgage before time or keeping up to a decade’s worth of living expenses in the form of cash and safe bonds.

Despite being an analyst at Morningstar, Benz advises on practical solutions to personal finance as well, populating it with steadfast investment particulars. However, in her opinion, what is of higher importance is the amount people save and how much spend rather than choosing fine-tune assets.

Morningstar, where she works as a copy editor, has a cynical viewpoint for return on equity over the next decade. It means that if you are a younger retirement saver, someone under 50, you still have a long way till retirement and returns will normalize after losing hope that there will be a great decade ahead. It will not be a wise decision to invest 1.6% into your retirement calculator permanently. For those who are close to retirement or have already retired, the possibility for such small returns is solemn which is why they should draft a plan to fit in potentially not great returns from stocks and bonds for the next ten years.

Financial Assistance

The plan should ensure that the portfolio is asset-allocated correctly to address the chances of another lost decade for equities. Have a “bucket approach to retirement planning,” which means putting aside a runway of safe assets from which you can spend through if you retire in a bad time for stocks. Retirees should be ready to accept lower withdrawals if a weak market environment takes on in their retirements. If the investors want an equivalent paycheck or a fixed amount year in and year out, then something in the range of 3% is a good start for a withdrawal rate.

For those who want to be on the safe side from a stock market drop before their child starts college, the target date funds are doing a better job at addressing this issue, particularly the age-based 529s. However, for those who are planning the education savings themselves, de-risk the bulk of your portfolio since the drawdown period during college spending is much faster than it is during retirement. In terms of tax, tax efficiency gets more important during a low-return environment. It becomes a valuable strategy to survey till the level you can handle them through asset location and tax-efficient drawdown.


The investments that are not included in a taxable brokerage account include fixed-income funds, actively managed equity funds of any type, and target-date funds that can generate tax bills as they rebalance. To have a tax-sheltered account, real estate investment trusts are a good option since they pay 90% of their operating earnings taxed as ordinary income. Anything that has tax-sheltering characteristics is not included in the tax-sheltered account.

There are various annuities that possess the characteristics of IRAs or other tax-deferred vehicles which makes them positioned outside the tax-sheltered account. There are several situations where you would want to keep short-term, low-returning assets out of Roth (IRA) because it is better to keep them aside for high-risk, high-return assets.

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