Motley Fool: Things to know before you retire

Most of us are looking forward to retirement, but millions of us are not sufficiently prepared because our retirement nest eggs aren’t large enough to support us through our later years. Indeed, fully 29% of workers have saved less than $25,000, per the 2024 Retirement Confidence Survey. Here are some things to know:

• If you retire at 62 and live to, say, 92, your retirement will last 30 years. You may need to be saving more aggressively. Invest your long-term dollars effectively, too – such as in a low-fee S&P 500 index fund.
• Though Social Security is likely to be important to your future financial security, it may not pay you as much as you expect. The average monthly retirement benefit was just $1,920 as of August – about $23,000 per year. (You can look up your own expected benefits at SSA.gov.)
• As you plan for retirement, be sure to plan for health care costs, which could be high. Per Fidelity, “a 65-year-old retiring this year can expect to spend an average of $165,000 in health care and medical expenses throughout retirement.” (And this doesn’t include over-the-counter medications, most dental services and long-term care.)
• It’s important to plan for retirement. We should be making estimates of our expected future spending needs and then figuring out how we will meet them. It can be smart to set up multiple income streams if you can – such as Social Security, dividend income from stocks, interest income from bonds and other savings, withdrawals from retirement accounts, rental income from properties, pension income and/or annuities.
• If you’re behind, you can improve your financial future in various ways. Some part-time work now and in your early years of retirement can help. It can also be powerful to simply delay retiring for a few years. That can allow you to sock away more money while letting your nest egg support you for fewer years. Learn more at Fool.com/retirement.

Ask the Fool

Q: What’s the best way to start investing in stocks if you don’t have much money and don’t know much about investing? – E.R., Midland, Michigan

A: It’s best not to start investing until you’ve read enough to have a basic grasp of what you’re doing. You might check out books such as “The Little Book of Common Sense Investing: The only way to guarantee your fair share of stock market returns” by John C. Bogle (Wiley, $27), “The Little Book That Still Beats the Market” by Joel Greenblatt (Wiley, $28) and “I Will Teach You to Be Rich: No guilt. No excuses. Just a 6-week program that works” by Ramit Sethi (Workman Publishing, $17).

Once you’re ready to deploy your dollars to grow over time, you might start by investing in a simple low-fee, broad-market index mutual fund, such as one that tracks the S&P 500 index of 500 major American companies. Such index funds outperform most managed mutual funds over long periods, and they can be great long-term wealth builders. You can learn more at Fool.com by clicking on the “How to Invest” tab.

Q: What’s a “run rate”? – W.U., Salisbury, Maryland

A: It’s an estimate of a measure for a longer period, extrapolated from the corresponding measure for a shorter period. So, for example, imagine that the Home Surgery Kits (ticker: OUCHH) company is growing quickly, with $50 million in sales in its last quarter. If you add up the past four quarters, they might reflect total sales for the year of, say, $140 million. But if you multiply the $50 million by four, you can refer to the company’s run rate for sales of $200 million. That’s a more accurate reflection of current sales.

My dumbest investment

All of us have regrettable buys, such as some stocks I bought during the frothy 2021 to 2022 period. Those were recently down 80% to 90%. Ouch!

Regrettable sells? I’ve got those, too. I bought a few shares of semiconductor company Nvidia at $157 per share, but then got nervous due to its very high price-to-earnings (P/E) ratio and fast growth rate, based on some new thing few understood called artificial intelligence (AI). So, at $450 per share (almost having tripled my money), I placed a stop-loss order to keep some of the gain if it tanked. The shares were sold when they hit $407 during after-hours trading. And now, with the stock recently at $120 after a 10-for-1 split, I’ve managed to sell a winner and keep the losers – not the best strategy. However, I did make some money. Shoulda, coulda, woulda. – B.G., online

The Fool responds: If you’re nervous, selling can be the right thing to do – and you only sold part of your position in Nvidia, which can be a nerve-settling compromise. But if you read up and learn more, you’ll see that plenty of top stocks have been rather volatile, and that companies growing quickly tend to command (and deserve) steeper P/E ratios.