The SIT Principle: Save, Invest and Be Tax-Efficient to Retire Comfortably

The SIT Principle: Save, Invest and Be Tax-Efficient to Retire Comfortably

All of us can retire millionaires. I’m pretty confident about this statement.

But it comes with a caveat. That is, in order to make this a reality, you’ll need to form and maintain some good habits.

It’s a process, and it can be summed up as “SIT.” To reach a goal like this, I believe you’ll need to ensure that you save, that you invest, and that you’re tax-efficient.


The amount you save from each payday while you’re still working is, arguably, the single most important factor that will determine how much retirement income you’ll have.

In my experience, people simply are not saving enough to live a comparable lifestyle to their current one throughout retirement. This is supported by recent research, including a GoBankingRates survey reported by MarketWatch, which found that 42% of respondents had less than $10,000 in retirement savings.

All too often, I notice that regular saving is put on the back burner; it isn’t a priority. People give many justifications — for example, they don’t earn enough or they have huge outgoings. In many cases, I believe these are likely to be excuses rather than economic truths. It may be more honest to say that they have an “earn-it-spend-it” attitude and are not focused on the future.

Living for the moment is all well and good, but I believe you can, and should, think about what comes next — your future — at the same time.

With this in mind, it is worth remembering that, for those who get paid monthly, there are only 120 paydays in a decade.

How much should you save? This will depend on your life circumstances, current age, preferred retirement date, desired retirement lifestyle and income.

There are many ways to bolster your savings, from setting up automatic contributions and taking advantage of the 401(k) match (if your company offers it) to cutting down on expensive daily coffees and taking your own lunch to work from home instead of eating out.

As a rule of thumb, I would recommend that those between 25 and 34 save between 10 and 20% of their income. For those ages 35 to 44, I believe this should go up to between 20 and 30%. For the 45 to 54 bracket, it goes to 35–45% or 50%. The reason for this recommendation is that, as each year passes, you have less time to put away savings to fulfill your retirement income goals, so you need to increase the amount.

As such, the sooner you start, the easier it will be to attain the desired amount of savings.


Investing is, in my opinion, essential if you’re serious about accumulating wealth for retirement. In all my years of being a financial professional, I have only ever come across a handful of individuals who have acquired enough money for their retirement by saving alone — and that has usually been because it was inherited wealth.

To me, having the correct investment mix — or, in other words, a properly diversified and regularly reviewed portfolio — is vital for long-term financial success. In order for a portfolio to be truly diversified, I believe it needs to incorporate different asset classes, sectors and geographical regions.

While it is true that financial markets are always fluctuating, history shows that over the longer-term their performance is indeed consistent; by my observation, they almost always go up. This can be seen in the long-term performance of the S+P 500 or FTSE 100.

Individual stocks, I’ve noticed, often take what has been called a “random walk,” especially in the short term. In the long term, the profitable ones will outperform, but selecting them seems to be random luck.

It is the stock market index as a whole that delivers consistent outperformance. It is the aggregate of the profitable and unprofitable, and so averages out the randomness of individual stocks. And the average should go up because investors are generally rewarded for taking on more risk. That’s how capitalism works.

Another reason for a stock market’s generally upward trend is survivor bias. Failing companies, and whole sectors, fall out of an index eventually, and new and profitable companies replace them.

This is why that old saying about the important thing being “time in the market, not timing the market” rings true.

If you are not invested, you will not benefit from the potential returns you could have been receiving to bolster your retirement income.

Be Tax-Efficient

“In this world, nothing can be said to be certain, except death and taxes,” Benjamin Franklin is credited with saying. And, while I share this view to some degree, there are legitimate ways to reduce your tax burden — and these could amount to considerable savings over the years.

No one wants to or should pay more tax than they absolutely have to and, therefore, I believe people should use all the legal tax deductions and credits available to them. The deductions can include self-employed social security, charitable gifts and health insurance premiums. The credits can include earned income tax credit, child and dependent care credit and savers credit.

There are several ways to make sure you are being as tax efficient as possible, such as thinking of your taxes as a family, rather than as an individual — as there are often allowances for couples, for example. You can also check your tax code for deductions and consider tax-efficient investments.


I believe that should people stick to my SIT principle, they will be well on track to retiring comfortably.

Financial freedom and security in retirement needn’t be pipe dreams — but, like anything worthwhile, they take some effort.

Source: Forbes
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