Don't Let a Lifetime of Saving Be Ruined by Bad Planning


Tom Binns officially retired 15 years ago. It took a lifetime of saving -- careful planning at every step and short-term sacrifices to achieve long-term goals -- for him to finally reach that milestone of financial freedom.

Still, even though his 9-to-5 earning years are now a memory, new financial responsibilities are ever present. As many retirees have discovered, even if you've saved enough to live comfortably, the golden years don't buy you a reprieve from money worries. In fact, being retired can make you even more vulnerable to fiscal strife if you're not prepared. According to a survey done by TD AMERITRADE, 57% of baby boomers will help their children out financially while putting their own retirement savings at risk.

A couple of years ago, for example, Binns' son was laid off from a manufacturing job. Since then he hasn't been able to find employment with the same level of pay and benefits. So Binns helps out with his son's expenses -- including those associated with caring for an autistic granddaughter. What's more, Binns also pays for the care of his mother, 97, who is in assisted living.

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"This wasn't part of my retirement plan but was dealt with under 'planning for the unforeseen,'" Binns says.

The Best Laid Plans...

Anyone can make a plan and stick to it, but when life throws a curveball, it's hard to not lose your footing. Binns, a self-described Southern boy from Tennessee, has been able to handle life's financial curveballs better than most.

The 73-year-old said he has a genetic trait of frugality in him, and he developed a flexible financial plan that allowed him to retire -- on time -- despite the death of his wife, job losses, salary cuts, and caring for others.

"There are a lot of twists and turns that will affect your retirement funding. Job loss, recessions, birth of children, unexpected uninsured calamities, divorce, illness, death of a spouse, lawsuits, relocation expenses, dot-com meltdowns, housing bubbles, inflation, stagflation, and on and on," Binns says. "You can't plan for all of them, but you must be aware of their possibility."

Five Pillars

Binns' saving practices may be a little on the extreme side (he sold eggs and milk from his farm to his own family -- granted, at a discount). But his idea that retirement would bring him freedom is pretty typical. For Binns, work was simply a means to make money to retire. Mapping out a plan to maximize his earnings every step of the way was how to achieve his goal. He based his strategy around five basic guidelines -- rules that can help steer anyone toward a successful retirement.

1. Invest in yourself. "The decision to pay myself first was the best investment decision I ever made," Binns says. "It's a guaranteed way to accumulate wealth as opposed to accumulating things."

Much like an athlete spends countless hours in the gym, Binns invested in himself. A portion of every paycheck would go back into his 403(b) plan. He remembers back when he earned $325 a month and would immediately take $50 of it to put toward retirement savings.

According to a Fidelity Investments study cited by 401k Planning, employees who continued to contribute to their 401(k) plan over the past 10 years have seen their retirement account balances more than triple, even accounting for the bear market in 2008 and early 2009.

2. Live below your means whenever possible. In a credit-driven society, it's all too easy to spend beyond your means and accumulate debt. The financial meltdown of 2008 was due in part to people (including those who work on Wall Street) taking on costs beyond what they could handle.

Binns made a point to live well within his means. "I resisted raising our standard of living by getting a more expensive car or house and only gradually replaced hand-me-down furniture," Binns says. "We sometimes had some very creative meal planning when we had to delay a trip to the grocery. Through it all, we never felt deprived of anything. You have to remember that this was before cellphones, Internet, cable TV, $4 coffee, computers, BlackBerrys, iPads, iPods, GPSes, and all the other things we can't live without now.

"Avoiding debt kept his family's finances from being thrown off-kilter. For example, when his son was born, their salaries were cut in half for a while. "I took up some of the slack by teaching night classes at a prison and teaching a GED course at night. It's amazing how a loss of income can be adjusted for if you have minimal debt," he says.

3. Plan for the unexpected. It's difficult to plan for The Great Unknowns in life, but Binns knew hardships would arise at some point, so he created a just-in-case emergency fund.

Binns says it helped him when his first wife was diagnosed with pancreatic cancer. It also means that he is prepared to help out his elderly mother. "My dad didn't leave her much, and she has been making it on a small pension and Social Security, which doesn't come close to covering her expenses. She is coming to the end of her resources as we pay more and more to keep her safe and comfortable. When her money runs out, I am prepared to take up the slack. "

4. Be an investor, not a gambler. Investing has been an evolving process for Binns. "I saw inflation and recession and 'stagflation' but just kept on looking for investments to put salary increases into. I took profits from time to time (and a few losses), but I was always looking for something else to invest in rather than toys to buy."

That said, not all of Binns' investment decisions were winners. "My worst financial decision was to get a $50,000 home equity loan and put it all in Intel (INTC) stock," he says. "That was not investing; it was gambling."

He also learned the hard way not to blindly follow "hot tips." "I lost a small percentage of my net worth by listening to some hype from my friends who knew some 'sure-fire winners' back before the dot-com meltdown," he says. He got off lucky, compared to a friend of his who ignored Binns' pleas not to put every penny he had into one stock. "He had to go back to work at the age of 70."

5. Never stop being a student. While there is no one-size-fits-all investment strategy, there is one thing that all investors need in their plan: knowledge. Without it you will shortchange your future, Binns says.

Many people have seen their savings trickle down to nothing because they have not read up before investing. The best approach is to invest in something they understand. More importantly, Binns says, know the rates, the risks, and especially what it costs to make each investment.

"Study investing as much as possible so you can take care of things that otherwise would require a fee from somebody," Binns says. "One thing that will increase your retirement nest egg is to avoid fees and commissions as much as possible. Everything taken out lessens the final value of your investments. You want to fund your own retirement, not the person's who is taking the fees and commissions." contributor Michelle Zayed does not own shares of any companies mentioned. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position on Intel.

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