Thanks Mandie for the photo

In the interview posted previously with Ben Stein, he says that the average savings for retirement is something like $50,000. Let’s put some meaning to that.

Let’s assume this ‘average’ person is 10 years away from retirement. At a 7% compounding rate, this $50,000 would grow to $100,000 at retirement. If that sounds like a lot, then you may be suffering from lump sum illusion. Let me cure you of that.

Using the rule of 25 (in this case 1/25), we can see that this means that the retiree can pull $4,000 per year from this portfolio. That’s $333 per month. The average person has enough savings to produce $333 per month in retirement. If you are the average person, could you live in the Bay Area with that income? Okay, throw in $1,800 per month in Social Security and now you are up to $2,133 per month gross income or $26,000 per year. Could you live on $26,000 per year?

Ben Stein’s perfect portfolio
Money maven Ben Stein doesn’t joke with Fortune readers about retirement.
By Ellen Florian Kratz, Fortune writer
June 13 2007: 9:17 AM EDT
(Fortune Magazine) — It’s no longer possible to win Ben Stein’s money. But there is one thing we can gain from the actor-cum-economist: financial advice served up with a dose of humor. Fortune’s Ellen Florian Kratz asked Stein to answer Fortune readers’ questions about retirement and added some of her own regarding his homebuying addiction and his dislike of Treasury Secretary Hank Paulson.

What do you recommend for a portfolio distribution in light of the collapsing dollar and peak oil?- Joseph Scheppe, Morgantown, W.Va.

First of all, I don’t know that we are at peak oil. What I generally recommend for the noncash portion of your portfolio - and this has been unbelievably successful - is a mix of various index funds and exchange-traded funds [ETFs], with roughly 25 percent in an S&P 500 index fund from Vanguard or Fidelity; 25 percent in a Vanguard or Fidelity total stock market fund; 25 percent in EFA, which is an ETF for developed overseas markets; 15 percent in EEM, an emerging-markets ETF; 5 percent in ICF, the ETF for real estate investment trusts; and 5 percent in XLE, which would be your energy fund.

I’m not a big lover of bonds because I think the risks involved in buying long-term bonds are tremendous, and the payment from short-term bonds is trivial. That said, you should have 20 percent of your portfolio in cash. I would say if you can get 5 percent or more on your cash in a CD or savings account, go for it. That way, you have it to tide you over if you lose your job or your health worsens.

How do you find a balance between the gratification of material desires today vs. investing for future retirement?- Jerilyn Dever, Los Angeles

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