It will sound counterintuitive in light of what you may have experienced. But if you do not change a few important strategies in your retirement plan now, you can’t hope to recover what you lost, get back on track for the future and retire anywhere near the lifestyle you envision. Sorry. But it’s the truth.
When we look at what is needed from a retirement planning perspective, we take age, years left in the workforce and the returns needed to get to that point. Common wisdom suggests we don’t do something irrational or risky as we near the end of our working careers. Which means our financial planners/advisers/professionals have been backed into a corner in this relationship: they tell you what you want to hear; not what you need to hear.
Without risk, you will get nowhere. The commonly tossed about return for the markets is the historic 8%. This includes a period of time when the 401(k) was first introduced and new investors using mutual funds drove the market to highs we are unlikely to ever see again. If you toss out those wonder years, we have a very tough road to travel if we are trying to protect our remaining portfolios.
This will require you to reassess a lot of things you took for granted would be luxuries. And when you do, understand their costs. Baby Boomers now consider internet connectivity and the broadband access that allows it along with the cable that streams all sorts of television, the phones we use, the vacations we must take and the pets we own as necessities – and in many instances, without a consideration of their costs.
If your financial adviser isn’t discussing these things with you or worse, you have never included these fixed needs in your discussion, shame on you. These will all have an impact on how much risk you need to take now to recover from any portfolio problems you have experienced over the last couple of years.
It also means more risk and less conservative investments at a time when you might typically think otherwise. It can be done but not if you have recoiled in horror at your lost ground. the only way you can grow your money quickly is to assume much more risk that most of us currently have. It means foregoing the target date funds, the fixed income indexes and the index funds in favor of actively managed securities. This will bring the high-cost naysayers out of the woodwork, with their factual claims that these funds do not perform as promised and for a low cost to investors. And they would be sort of right. But not always.
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