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how to invest for retirement

Updated on August 4, 2015

investing for your retirement


One of the big priorities we have in America today, is to have an adequate amount of income for retirement in the future. As I documented in my article on Fixing retirement accounts the present retirement investment accounts are not adequate to supply the necessary retirement income for American workers.

When you retire you need at least ten times your annual salary at retirement in investments plus the income from social security to provide the same lifestyle that you are now used to. You have a forty year period of work life in which these savings can be accumulated. Most experts agree that you will need to save at least 10 percent of your annual salary in order to have ten times your salary when you retire.

I personally believe that you will need to save that percentage from your wages in your earlier years. However if you do your own investing in later years you will be able to take much less out of your own paycheck, because you will make up the difference with profits from your investments. One of the problems with 401k's usually is that someone else is managing your money, and over the long term they don't do nearly as good a job.

In this article we will discuss the three types of investing, business investing, real estate investing, and stock market investing. These three areas the average investor with a little experience can do reasonably well in. The thing to remember is that you have decades of time to build your retirement savings, so you are not looking to make a big score in any one year.

The problem with producing big profits is that they can also lead to big losses. The slow but steadily increasing investment profits over a long period of time is really the way to go. The first type of investing we will look at is business investing.

investing in small businesses

Investing in business

When you consider investing in a small businesses you need to have at least one of three qualifications. You are an entrepreneur, or you are a manager where you can offer management expertise to the new business owner, or you belong to an investment group that has at least one manager in the group.

With small business investing you need extra expertise that you can offer the small business owner, in order to protect your investment against possible failure. The single biggest problem that causes most small businesses to fail is lack of management ability. The second biggest problem is a lack of cash to carry the business over rough financial periods..

A long term investment group with management capabilities would be ideal for investing in small businesses for these reasons. They could not only do longer term loans or equity investments but also supply short term capital infusions when needed. For retirement savings funds small business investing would be ideal, as long as you can offer some management expertise. Next we need to look at real estate investing.

real estate investing

How to invest in real estate

Investing in real estate to build retirement income is another situation that works best when done over a long term. With the exception of flipping houses real estate investment is a long term investment.

Whether buying single family houses at distressed prices or investing in multifamily buildings, holding the investment for the long term is the best way to build retirement wealth. That is the reason it works for retirement investing. Prices on real estate can fluctuate over the short term, however over the long term they most always will appreciate, which makes real estate investing ideal for retirement. Also using rental income to pay off mortgages is another wealth building secret.

The biggest problem that you will run into with real estate investing is collecting the rents due on your property. The best way is to have a rental company that both rents the properties and collects the rents. You need a really heartless type of person for this job. The tenants will try all kinds of tricks to get out of paying rent, and most people do not have the right temperament to be a rent collector. That's why it is best to find someone with the right temperament to be a rent collector, and then use them all the time.

The best way to do real estate investing is to home in on a particular type of building, and do the vast majority of your investing with this type of building. I used to know an accountant in the Chicago area that invested in 18 unit buildings. He formed up limited partnership groups in which he was the general partner. The group would buy an eighteen unit building hold it for a number of years, until the tax advantages ran out, and then usually sell the building at a nice profit.

He had a schedule figured out for doing repairs and maintenance on the building, as well as a schedule for replacing appliances. For example he would replace refrigerators every seven years. When he bought the building he would make up a schedule for maintenance, needed repairs, and appliance replacement. Then he would allocate the rents to these needed expenses on the schedule. Once in a while he would run into an emergency repair that he hadn't planned for, but not very often.

The point is that he understood investing in 18 unit buildings, and very seldom made a mistake. I had never known him to invest in any other type of building, because the 18 unit building was a very popular type in the Chicago area.

The main idea behind what i'm saying is the idea that if you possibly can, you need to stick to one style of building in your real estate investments. You will find you will do a lot better if you follow that advice. When you get close to retirement age, it then becomes time to start slowly unloading buildings as you can at a good profit. You can then invest in more short term investment that will allow you to access the money when you need it.

Stock market investing

Investing in the stock market

For those of you who have no interest in business investing or real estate investing the remaining way to invest is in the stock market. In order to do stock market investing properly you must realize a couple things. First you are dealing with a very long time frame of up to forty years. The second idea is that you need a system for investing.

The good thing is today it is much cheaper to buy and sell stock, than it was three decades ago. You can now buy and sell a thousand shares of stock for twenty dollars or less, where three decades ago, the same 1,000 share purchase of stock would cost at least $100.00 dollars for a buy and sell, and the second benefit is that you don't have to listen to their rotten advice. The only advice that you should listen to on stock buys or sells is your own.

The first investing idea is for the short term, and one which makes you anywhere from 25 cents to one dollar a share. This doesn't seem like much until you realize that you are buying 1,000 shares at a time. That means that you could clear between $230.00 and $980.00 on each buy and sell after commissions.

The second thing to realize is that you can make one of these buy/sells about once a week. Of course you won't always have a winner, but with the right amount of study on your part you will have many more winners than losers.

Through a lot of research you need to develop a list of fifty stocks in the right price range, that you can pick your weekly stock buys from. From your stock research you will learn the trading range of each stock.

From this you can determine the price to buy and to sell each stock to produce what you need to make on that stock. What you make on stocks depends on the amount you have to invest in the stock. You want to have at least five thousand dollars to start as this takes a lot of the luck factor out at the start.

While you are saving this five thousand dollars you can do the necessary research to gain your list of 50 stocks. You of course, will need to consider a lot more than 50 stocks, from which you will pick the final 50. What you are looking for is stocks that trade for a long time in a narrow range, and that trade at least 100,000 shares a day.

We will use the example of a stock that is now trading for $5.00 a share and also trades as high as $5.50 a share. You can see here the ability to make 25 cents a share. You would try to buy at $5.00 per share and then immediately put in a sell order at $5.25 a share. That way you don't have to be constantly watching the stock waiting to sell.

When the stock sells at $5.25 a share you need to have two or three more that you can use the money to invest in. You pick the best one and make your next buy and sell order. That way you are keeping your money invested the best that you can.

I tried this one time in which I invested two thousand dollars and then turned it into eleven thousand dollars in about five months. It can be done it just takes a lot of determination. Just remember that you have many years to turn this into a big sum of money.

Once you get enough money you want to trade in stocks that sell between ten and thirty dollars a share and that have average sales of around 500,000 shares a day. That will mean that the stock is liquid enough for you to easily sell your 1,000 shares. This is very important to your being a continued success at making money trading stocks.

The second thing to consider is where you are in the stock trading cycle. Are we just coming out of a recession, or about ready to go back into one. This is very important to how you invest. Lets say that you have fifty thousand dollars to invest and it is the end of 2008. This is the start of a cycle, and you should be ready to make some investments. At that time Ford was selling for a little more than $2.00 per share, and so you buy five thousand shares for around eleven thousand dollars.

If you sold those shares today they would be worth about eighty five thousand dollars. That would be a gain of seventy four thousand dollars in five years. Now if you invested the rest of your fifty thousand dollars in the same way with close to the same luck, you would probably have close to a quarter million dollars off of your fifty thousand dollars.

As you get close to about seven years out from the last recession you want to start being a lot more cautious with your investments. Between the seventh and tenth years you don't want to trade in more than two stocks at a time. That way you won't have more than sixty thousand dollars invested at a time in trading. In fact I wouldn't want to have more than forty thousand dollars invested at a time after that period.

It seems that a recession occurs every seven to ten years, because that's when all the fools rush in and try to make their fortune in some way, thus causing a bubble and a recession. You keep the majority of your money in cash during that period, and wait for the recession where you can really make money again.

Now we will use the example of a young woman who is twenty five years old, just graduated from college, and is making forty thousand a year. We would tell her to put away at least four thousand a year in retirement savings, and so just after about one year she would be ready to start investing.

If she invested that five thousand dollars forty times in the next year, and cleared $230.00 dollars each time, she would have a profit of about nine thousand dollars for the year. Add this to the four thousand she had to start and the four thousand she saved that year and you can see that she already has about seventeen thousand dollars saved for retirement. You would probably only have to put money away from your salary for the first ten to fifteen years and then barring any extremely bad luck you would have enough money to invest where you wouldn't need to save anymore.

By the time you retire you want to have at least ten times your yearly salary saved for retirement. By the time she retires she should be making at least sixty thousand dollars a year, which means she would need six hundred thousand dollars saved for retirement.


As you can see it is possible to save enough for retirement, so you can live the same lifestyle as you did before retirement. It just takes the determination to save the money from every paycheck faithfully over a period of years.

Later in life you may not have to save as much depending on how good you were at investing. At that time you would have more to spend on creature comforts, and you would already be secure that you were on target with your retirement savings. This is what is meant about leading a planned life.


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