It’s not always easy to see how you’ll reach your retirement goals. Saving up enough money to last you 30 years or more is a daunting task, and volatile markets such as we’ve seen in 2015 don’t make it feel any easier. But you don’t have to be an investing expert or market clairvoyant to make it happen. The key is to get a handful of big things right: How you save, how you deal with risk, and how you spend down the money after you call it a career. Here are five real-world examples.
The Move: Save First, Then Budget
Sahab Zanjanizadeh, 38
Highland Heights, Ky.
Sahab Zanjanizadeh was 29 years old when he stumbled upon a PBS Frontline special about retirement. He remembers that it explained one simple concept: compounding, or the fact you earn interest on interest. “My parents made a lot of sacrifices for us but one thing they didn’t provide is knowledge about investing,” says Zanjanizadeh, who moved to the U.S. from Iran when he was 11 years old. “When I realized the value of compound interest, I kicked myself for not starting to save earlier.” Although he then earned a not-so-lavish $50,000 salary as a software developer, he decided to make up for what he considered lost time by maxing out his 401(k). He has since built up a $200,000 portfolio.
He concedes that as a single person, it’s been easier to save without the expenses that go along with being married or having children. But he still makes sacrifices to do it. Though he could afford more on his current income, he lives in a modestly furnished two-bedroom condo and drives a 16-year-old Nissan Sentra. Today, he puts away 34% of his income, in part by by maxing out his 401(k) (which has a generous 9% employer match) and contributing the max to a Roth IRA, a smart tax move. “A lot of people adjust their savings to their lifestyle,” he says. “I adjust my lifestyle to my saving.”
Read More: How Saving Early Reduces Your Risk
The Move: Play Catch-Up
Caroline Bol, 50
Los Angeles, Calif.
For a long time, Caroline Bol, a television producer, didn’t have a lot worries about retirement. She and her husband Chris Pielli, 53, a TV cameraman, earned good salaries. Pielli contributed to his 401(k) and they were saving regularly for college for their two children. But when Bol turned 50, she had an “aha moment” when work slowed down and she realized just how little she had saved for retirement. As a freelancer for seven years, she didn’t contribute to a retirement account. And Pielli has no company match on his 401(k).
In February, Caroline switched from freelancing to a full-time staff job with benefits a 401(k). She’s now maxing out her retirement plan and taking advantage of the catch-up contributions that allow people 50 and over to put away another $6,000 per year in a 401(k), above the usual $18,000 limit. Bol and Pielli have two kids in college, but they’ve adjusted their discretionary spending to make up for the income going toward retirement. “The peace of mind makes it worthwhile,” say Bol.
The Move: Diversify Your Investments—and Your Income
Smily El-Abd, 63
The 2008 financial meltdown taught Smiley El-Abd a tough lesson. Back then, El-Abd, a mechanical engineer, had 100% of his portfolio in stocks, mostly individual stocks in technology and health care. At one point, he says his portfolio was down 40%. With less than 10 years to his planned retirement date, “I knew I had to get a lot more conservative,” says El-Abd. He moved his money into low-cost index funds and changed his asset allocation to 50% stocks and 50% bonds. “I didn’t want to worry about it anymore,” he says. “The highs won’t be as high but the lows won’t be as low.” During the steep market drop in August, he says he wasn’t concerned and his portfolio was down just 4% at its lowest point. “It could have been a lot worse if I didn’t have those bonds.”
An avid cyclist, El-Abd once had a part-time job doing custom bike fittings for a bicycle maker. As his main career revved up, he quit that job but bought the sizing equipment and installed it in his basement. Through word of mouth and social media, his bike-fitting business has caught on with the triathlete community and his side business is booming. A little too much, in fact. Between his two jobs, he puts in 60 to 70 hours a week, including doing fittings on Saturdays and after work. He and his wife Karen Engstrom, 52, a product development vice president for a small firm, are both cyclists and often ride a tandem bike. But “we hardly get time to ride these days.” Looking ahead to retirement in two years, he plans to continue bike fittings part-time. “I always intended to work in retirement—I have too much energy not to,” says Smiley. “My side job has turned into a dream job that I will carry into retirement.”
The Move: Put Your Money in Buckets
Ed and Dorothy Bilger, 72 and 71
The Bilgers successfully managed the saving-spending balancing act before retirement. They helped support their three children through college without going into debt, and still managed to save enough for Ed to retire from his engineering sales job at 62. But then came a new challenge: Figuring out how to make their savings last.
They decided to use what’s known as a bucket strategy. They divided up their assets into three groups. Bucket one has $100,000 in easily accessible money market funds, enough to cover one-year’s expenses. Bucket two, meant to fund years two through five, is in long-term bonds and low-cost bond funds. Bucket three is a riskier, 60-40 mix of stock and bond index funds. “Money you need to spend must be available and in a safe place,” says Ed. “That approach allows you to be more aggressive with your long-term investments.”
Despite the bear markets in 2001 and 2008 and the recent market drop in August, “I feel comfortable with my investments,” adds Ed. “I haven’t made any moves in the market.”
Read More: Make Your Money Last Through Retirement
The Move: Start Early
Hla Hla Shih, 45
Hla Hla Shih doesn’t mess around. Within a year of graduating with a degree in pharmacy in 1993, she was was investing in a 401(k) and maxing it out. She also she opened a brokerage account to contribute to three mutual funds and bought her first home at 28. Today Shih, a pharmacy manager, owns several real estate properties that bring her additional income, some of which she funnels to retirement savings. With more than $1.5 million in retirement and brokerage accounts, she has a new goal in sight: Retire by 50.
Shih chalks up her focus on saving to her own family’s humble start in the U.S. after emigrating from Burma when she was three. And the fact that they gave her an early financial education. “We were not as well off to do as the average American family, especially with six kids,” she says. “I remember being part of the subsidized school lunch program. My family always talked about saving. That stuck with me.”
“I tell my nieces that they need to start early saving for retirement. When you put away money that has 30 years to grow, the compounding interest does a lot of the work for you,” says Shih.