How’s Your Retirement Plan?

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How’s Your Retirement Plan?

by | Dec 1, 2016

Preparing for retirement is a top priority for an overwhelming majority of Americans, but only 50% of pre-retirees believe they are well-prepared with a strong retirement plan, according to the results of a Prudential Investments survey of 1,568 adults living in the United States. 
The biggest problem Americans face when planning for retirement is lack of knowledge. The survey found 63% of Americans find investing “complex and confusing” and 40% [of pre-retirees] “don’t know what to do to prepare for retirement.”  54% of pre-retirees have less than $150,000 saved in their employer sponsored retirement plan, and the same percent of pre-retirees also said they have no idea how much money they would need to save for retirement. 24% said they need more than a million while 22% said they need less than a million.

In the past we had the “three legged stool” of retirement income: A pension, Social Security and retirement savings.  (We won’t add here winning the lottery) as some folks base their plan on.  A small sub-set of government employees and teachers might have a pension to rely on but these are rare now. So, Social Security, only meant to be a very low base of income safety net, must be primarily augmented with your retirement savings.

If you wait until you feel like you know enough and understand all the detailed facts of retirement savings like how much is enough, you’re going to wait your life away.  It’s advisable to work with an experienced CERTIFIED FINANCIAL PLANNER™ professional to help determine your retirement goals and make sure to commit to a plan over time to accumulate the needed funds.   Also, waiting until the markets “feel safe” is a loser’s bet.   If you wait until everything is perfect, you’re losing money. By keeping your money in the bank at .0X% these days, you’re actually going backwards on an inflation-adjusted basis. You’re losing money every day after taxes and inflation. 

Additional roadblocks to savvy investing are the emotions of greed and fear.  Periods of market volatility – especially pullbacks – can trigger emotional responses in investors. Volatility can also appear as rapid upswings causing sometimes-unbridled euphoria that can also impact judgment. That’s why the best response to market volatility is to have a longer term perspective.

Market pullbacks have occurred throughout history and can make investors want to pull up stakes and pull out – a common reaction and a common mistake, especially for long-term investors. The right knowledge can help avoid this mistake, and there’s no better teacher than history.

As shown in the chart below, returns over short periods of time have been typically unpredictable. But things tend to become less volatile when you expand the time horizon to five years or more using rolling returns. Rolling returns show the behavior of returns for holding periods like those experienced by long-term investors. In the chart below, we see positive returns over every 20-year period in the S&P 500.

Range of S&P 500 Returns Based on Time Horizon


The key points to remember are:

1. Determine your needed cash flow balance of having for today and saving for tomorrow.
2. Never spend more than you make.
3. Commit to a regular savings and investment plan.
4. Keep a long-term perspective, even when you retire, since you could have 25-30 more years of need for increasing income to keep up with inflation.
Any opinions are those of Thomas Fleishel and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. You should discuss any tax or legal matters with the appropriate professional.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.


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