Most Americans planning for retirement seem to have a love-hate relationship with the stock market—especially those who had planned to officially retire 8 years ago.
Cyclical in nature, the market typically experiences a "major crash" every 10 to 15 years. As even the world's best economists can not predict their exact timing, having proper strategies in place is vital. While the typical advice to ride things out will always apply, there are many things you can do to ensure your retirement plans will not be deflated.
We have compiled a list of article summaries and links that provide a comprehensive overview of how, when, and why to prepare.
Market corrections are a normal part of the stock market's cyclical nature. But, despite their inevitability, many investors understandably become uneasy during down-cycles. Couple this with our 24/7 news cycle and the media's need to sensationalize and you have a recipe for panic. While there isn't much you can do mid-correction (weathering the storm is usually the best bet), these stretches are often an ideal time for analyzing individual holdings, searching for bargains on individual stocks, and reviewing overall financial strategies. Never underestimate the calming influence of all well-thought-out plan!
What is the ideal age for retirement? Though the answer to that question understandably varies, according to personal situations, most Americans will readily agree it is not 65. Thanks to longer life expectancies and greater job satisfaction, most of us have little motivation to retire so soon.
With that said, there is an ideal age for retirement. And it is probably not what you think. Although anyone can legally begin claiming Social Security benefits at age 62, the golden number to remember is 76. Each year an individual defers claiming benefits past age 62 (up to the age of 70), he or she will generate an 8 percent increase. That translates to 76 percent more benefits for working 8 years more. Check out this article to learn why this just may be the best financial opportunity you will ever have.
While the average investor is well aware that "staying put" is the safest course of action during market volatility, there is always the temptation to pull out. Buying high and selling low is almost never a good idea. Yet, emotional knee-jerk reactions routinely incite what later come to be regretted choices. This can be especially troublesome for retirees who may feel they have less time to ride the market out, often leading to an unfortunate divestment of equities. In this article, you'll find several tips for volatility-proofing your retirement strategy.
A recent report detailing the 401(k) savings habits of millions of American workers found one in four are not contributing enough money to qualify for their employer's maximum match. The average annual amount of money not claimed is more than $1,300 a year. Why is this happening?
Unfortunately, many automatic enrollment plans set initial contribution rates low by default. Meaning, if a new employee hasn't read the fine print, they could go many months (or years) without taking advantage of all their employer has to offer. Read this article so you don't kick yourself for making such a simple mistake.
There are two main types of stock-based deferred annuities: variable and indexed. Variable annuities involve the investment of your principal in numerous pre-selected subaccounts. Similar to mutual funds, these funds rise and fall with the market. Though variable annuities often have higher return potential, their high fees tend to cancel out significant profits.
Conversely, the returns of indexed annuities are not influenced by market falls. While that is nice, they also do not acquire market-like returns! Providers (often an insurance company) typically pocket hefty return percentages with both types. As such, it is important to carefully explore all options in their entirety before selecting an annuity.
Will we be able to maintain the same quality of life in the future? Understandably, it's one of the biggest questions couples have as they approach retirement. Though correctly investing in the stock market is a necessity, it is far from the only measure that should be taken.
Properly anticipating future expenses, routinely updating retirement plans according to lifestyle changes and consistently saving early enough are also vital parts of a successful retirement.
Contrary to what most people seem to believe, calculating how much you need to retire is actually a straight-forward process. It can be broken into three steps:
- Estimating how much you will need according to recommended percentages.
- Evaluating the current projections of your three primary sources of retirement income—Social Security, pensions/annuities, and your savings.
- Determining how you will make up the difference, if any.
Only one in five couples has developed a detailed retirement income plan, according to a recent Fidelity survey. After discussing retirement concerns with many couples over the years, we are not surprised. The majority of our clients express a great deal of trepidation when it comes to planning for the future.
Though one might assume high-net-worth individuals have little to worry about, they oftentimes feel enormous pressure to maintain the lifestyles they have grown accustomed to—which is why it is so important for couples to openly communicate their desires, concerns, and expectations with one another.
Although most advisors will readily agree everyone should have several months of living expenses set aside for emergencies, not all concur on exactly what percentage should be kept in investment accounts.
Some advocate staying almost fully invested at all times to maximize gains, while others insist having a stockpile of nonemergency cash in a portfolio is preferable. As is often the case, the answer comes down to a variety of personal factors—reasons for holding, frequency of trading, and current life situation all come into play.
No one ever said retirement planning was easy, but it actually can be an enjoyable process once all systems are in place. Think of it like planning to host a large dinner party for the first time. Initially, there may be some hesitation. Ingredients, timing, cost and preferences of guests will all need to be considered.
But once you have everything in place, all you have to do is follow the recipe. Do this with reasonable care, and you can relax and enjoy the process. Read this article to learn the key ingredients for planning a successful retirement.
There are several things successful retirement savers have in common. One of the biggest is the age at which they began saving. Though it's never too late, the biggest gains will likely be experienced by those who start consistently saving by age 25. Other factors include boosting contributions, keeping expenses ratios low and avoiding unnecessary investment fees and penalties.
As you begin to approach retirement day, it's important to start thinking less about the lump sum value of your nest egg, but how you will live off it.
In reality, your position when you're close to retirement is not much different from someone younger who has the luxury of riding out the crash. If this sounds surprising, it's because of a relatively common but unspoken assumption that the value of your nest egg stops growing the day you retire. Without articulating it, many people think if the stock market crashes, say, six months before they retire, they are doomed, because they don't have the luxury their younger compatriots have of riding out the crash and letting their investments recover.
As the market pushes stock prices around, the makeup of your portfolio changes. Such movements often end up changing the characteristics of one's portfolio. For example, a 10 percent market decline can turn a 60-40 stock-bond portfolio into a 58-42 portfolio, assuming bonds stay flat. Over time, these changes can offset asset allocation, taking you off track from the allocation needed to reach your goals. Though the concept of rebalancing is relatively simple, the practice can get quite complicated due to tax consequences or transaction costs which are best to avoid. Finally, some investors are a little overwhelmed by rebalancing. If that's the case, just skip it. The most important part is to stay invested.
As you can see, there are many things you can do to grow and protect your retirement savings. Take the time to prepare and strategize today and you will be giving your future-self the best possible gift: Peace of mind.