Last month’s whiplash in the market may have made you sit up and take account of your own savings. Now is the time to carefully look at your retirement and how you can finance it. It’s not just those approaching the golden age that need take heed. Those of us at a much younger age need to begin considering effective retirement strategies too.
Old age is a destination that we are all heading towards and we are going to need money when we get there. So don’t have your future-self cursing you tomorrow, start thinking effective retirement strategies today.
Forward Thinking: Investment
When should we start to invest for our retirement? Well, that’s easy: as soon as possible. If you start saving the moment you leave college then your money has much more time to grow. This leads to the wealth building phenomenon known as compounding. There are several investment types to consider when planning your future. Here are some of the more effective retirement strategies when it comes to investments:
Dollar Cost Averaging- DCA:
This is when you buy up fixed dollar amounts of an investment at regular intervals, disregarding the price of the shares. When prices are high then less shares are bought and when they’re low, more.
It’s a consistent form of investment and when there is a rise in the stocks then so is there a rise in your wealth. However, when the prices fall, then your money is their to pick them up cheaper
401(k)s, 403(b)s, 457s and Thrift Saving Plans:
If you have one of these then chances are you’re already employing DCA. These plans are ways to save for your retirement that your employer or a sponsor provides. They are often described as “defined contribution plans”, because of the fact that you make contributions to the plans.
These are effective retirement strategies that contribute towards that golden dawn of retirement on a regular basis. Plus they manage your money better so that it grows healthily. Grant Engelbart, portfolio manager at CLS Investments, says that: “Sticking with that investment plan will ensure that you are both taking advantage of market selloffs and participating in strong, trending markets.”
Roth or Traditional IRA:
Most employers provide 401(k)s, which receives regular contributions. However, Engelbart claims that in addition to your 401(k), you can also contribute a set amount to a Roth or Traditional IRA each month. IRA stands for Individual Retirement Account and is basically a savings account with big tax breaks, making it ideal to stock up bonds, stocks, funds and other assets ready for retirement. Unfortunately, not all of us are eligible, there are restrictions based on income or employment status.
Target Date Funds (TDF):
These are collective investment schemes designed to provide a simple investment solution through a portfolio whose asset allocation becomes more conservative as the target date approaches. They start off with more risky investments, such as stocks, which fluctuate up and down more aggressively. But as you near the end of you career their balance shifts to traditionally safer options, such as bonds.
This is an effective retirement strategy, because the closer you are to retirement, the less time you have to recoup any losses. So you are therefore much more sensitive to negative shifts in the market than you were when you were younger.
However, not all TDFs are born equal. Some can still be heavily exposed to equities, even as the client enters their 60s. Tom Mingone claims that this is to keep them safe against the forces of inflation. Some people could find themselves still exposed to the forces of the markets in their 60s.
This is down to the fact that life expectancy is getting longer and correlating your investments until you retire may not be a reasonable solution if you are living until you’re in your 80s or 90s.
A Sure Thing
When you finally reach the golden dawn of your life it is useful never to rely on the interest garnered from your investment portfolio in order to fund your monthly expenditures. You need to finance this as well as possible using guaranteed income, such as Social Security or a pension. These are consistent forms of income that aren’t effected should the stock market suddenly crash.
However, with pensions hard to come by and fears that the Social Security pot is running empty, there is another way to keep your income steady, even if the stock market drops. Rick Salus, senior vice-president and investment officer at Wells Fargo Advisors, offers this advice:
“If you own bonds that don’t default and dividend stocks that pay income, even if a stock loses 30 percent of its value, you’re still upset, but it wont change how you’re living in that moment in time.”