Question:What is the single most important thing to do for a financially secure retirement?


Answer:Make an annual plan that projects the future.Involve your spouse.Keep a file.See how you did vs. last yearís plan.Redo the plan every year so itís consistent with the savings youíve accumulated to date.


Question:OK, now that weíve got you rolling, what are the next most important things to do?


Answer:Well, one of these has to be using automatic paycheck deposits to retirement savings.There are lots of benefits especially if part of your deposits are matched by your employer.But even beyond that, dollar-cost-averaging may add almost one percent to your return each year if you continue the process for a decade or more.


Question:So what would be third on your list?


Answer:Iíd say they are the things that you normally write about, namely intelligent allocations and low costs.


Question:Why isnít this first on your list?


Answer:I put this third because you first have to have an idea how much to save and then actually make the savings.If you donít have anything to invest, or the amounts are negligible, allocation and costs are academic because youíll have all of your money in checking accounts or owe big credit card bills.


Question:Have you ever made any bad investment choices?


Answer:Oh my gosh yes!When I was very young, I believed the advice from my broker.Practically everything he recommended lost value after I bought.I think he was paid to get rid of the dogs in the brokerageís own account.But later on I made bigger mistakes investing in a number of real estate partnerships.I learned the truth of the story that at the beginning of the partnership, the general partner has all of the knowledge and the limited partners have all of the money.When the partnership is finally dissolved, the positions are reversed so that the general partner has all of the money and the limited partners end up with the knowledge.


Question:I know that you recommend that people have money set aside for emergencies, but can you quantify this?


Answer:I think that the least a person should set aside is ten percent of whatever are the current investment balances.Unfortunately, people with little investments should probably set aside more because the costs for helping aging parents or adult children in financial trouble can wipe out savings entirely.But not all emergencies are total surprises, like replacing your roof some day, so you can use a little back-of-the-envelope math for these estimates.


Question:What do you mean by this kind of math?


Answer:You can take a lesson from a competent home ownerís organization.It will budget for replacement items.Simply estimate the cost in todayís dollar values and then divide that by the expected life.So if replacing the roof would cost $20,000 and it is expected to last twenty years, you have to put away $1,000 each year.Each year you redo the analysis using current costs.Inflation will bump these up, but hopefully your savings will have earned some interest to offset that.The shocker in all of this is how much you should have already set aside.If youíve already used up fifteen of those twenty years, you need $15,000 set aside in your reserve now.


Question:So what do you do if you donít have an emergency reserve that has $15,000 or if the money is in a retirement account?


Answer:First of all, it would be very unlikely that Iíd take the money from a retirement account even if I wasnít going to be penalized by the IRS.Few people realize how dependent they are going to be on their savings for the last thirty or so years of their lives.So the answer is that you should start saving as much as you possibly can and then make the ultimate replacement using borrowed money.The more that you can save--and the further that you can get from having to borrow money--is one of the biggest differences between those who are poor and those who ultimately get rich.


Question:You are getting a lot of press recently from your website article ďDoing Better Than Your Peers.Ē(Seeít that one of the main points that you make there?


Answer:Thatís true.Unfortunately, the vast majority of people arenít saving enough money to keep the economy going in a decade or so as the population ages and the reliance on savings increases.Those who start saving significant sums now while things are really humming will benefit from decent returns.Then, when things slow down, and tax rates get high again, they not only will have money to spend, they may well buy at relatively lower prices.


Question:You also believe that tax rates and inflation will both increase in the future.Why this pessimism?


Answer:This is a combination of several things:First is the lack of savings for the last twenty years.Next is the demise of traditional pensions which raises the amount that we should be saving.And last are the incredible levels of record debts at all levels:international, national, state, industrial and personal.The governmentís major debt is the unfunded Medicare and Medicaid liability which even dwarfs social securityís problems.The government has several ways of dealing with this:Increase tax rates, reduce benefits and let inflation increase.The last is the easiest and is very effective.The government will pay for its debts and future benefits with very cheap dollars.Unfortunately, this will wrack severe damage on retirees.


Question:So you think the answer to all of this is to increase savings?


Answer:Increased personal savings are the best insurance for the few who will listen.The population as a whole will continue to spend because they are unable to resist the unflagging consumerism bent thatís encouraged by the government, industry and financial services.You canít save money if you always have to have the latest in electronic equipment, get the most recent media services, provide your children with every modern device, buy large houses, have easy access to cheap credit, and so on. Saving will initially put you behind the Joneses, but youíll ultimately far outstrip them.Itís just like the tortoise and the hare.