The media aren't over-stating this retirement issue. There really is an economic catastrophe overtaking those over-65. One out of seven of the over-65 are living in poverty. That's what the Kaiser Family Foundation found. You don't want to be among them. And you don't have to be. You might prevent ending up poor, after a life of working hard.
How? During your working years, your #1 mission has to be funding your retirement. Nothing can distract you from that goal. Just as important, you have to continually check that you're calculating what the good life in retirement will cost you. According to Fidelity, you will need 60 - 80% of your current income to maintain your lifestyle during retirement.
Good News about Retirement Funding
There is good news about funding your retirement. The process has become easier. And less stressful. That is because of updates in the Pension Protection Act of 2006. Two of those updates are game-changers for how you will approach funding your retirement.
1. Government Now Allows Your Plan Access to a Financial Adviser
There are no account balance restrictions on who can use an adviser. If you have a company retirement plan you should use an adviser! One of the game-changers is this: The government now permits you to have a financial expert help you manage your Defined Contribution Plan. That's new.
What is a Defined Contribution Plan? The Urban Institute & Brookings Institution's Tax Policy Center states a Defined Contribution Plan provides vehicles which might help you prepare financially for retirement. They include the 401(k), 457, and 403(b). Those are tax-deferred. Through them, you invest funds in assets such as equities and bonds. Your employer often makes a contribution to those.
But, unlike the "pension" from the old days there is no guarantee that when you retire, you will receive a set amount each month.
Before the revisions in the Pension Protection Act, you had to manage your Defined Contribution Plan yourself. You were out there on your own. And, given all the volatility in global financial markets, that might have been left you feeling confused and anxious.
As you know, DIY - that is, Doing It Yourself - might often be emotionally satisfying and money-saving. For example, you might have enjoyed and not spent a lot of money by putting a deck on your house yourself. Or changing the oil in your car yourself. However, DIY might not be a good experience or be a smart money move when it comes to your retirement planning.
You might have already made plenty of mistakes in your retirement plan. Those might happen because you make investment decisions based on emotion, not your risk tolerance. And that tolerance for risk might change over time. In addition, the DIY approach might bring on the worst kind of stress. When you are your own adviser it is easy to make knee jerk reactions to market events.
In the old days, employers not only contributed to the retirement plan. They insured it. They hired financial experts to monitor the company plan. Those experts were on the lookout for opportunities to build wealth. They also picked up on red flags about how to possibly avoid risk. Only experts could have interpreted developing conditions as threats to a portfolio. Thanks to the insurance and that guidance, employees would end up with a guaranteed pension of so many dollars a month.
That was then. Those kinds of retirement plans mostly have gone the way of the landline phone. They are now more scarce than buggy whips.
Today, usually your only option is the Defined Contribution Plan. Until the updates in the Pension Protection Act, it was up to you to manage your investments yourself. Yet studies by financial institutions, such as AonHewitt, show that having a financial adviser might and often does boost financial results. Those might total more than 3%. And that is net - the amount you get after you have already paid any fees.
Why is that? Well, going the DIY way opens the door to common errors of judgment. For example, you might not diversify your investments. You may be too cautious about purchasing mutual funds or not cautious enough.
Another typical error is not reviewing that diversification or asset allocation as circumstance change. For example, you might be getting older, find you have less energy, and want to retire five years sooner than you had planned. In that situation, you might wish to change the mix of your account.
2. You Have More Investment Options
The second way the revisions in the Pension Protection Act benefit you is that you have more choices of what to invest in.
Why is that important? The financial industry is innovative. You hear about how creative the technology industry is. Silicon Valley never remains with the status quo. It is always developing fresh solutions for problems. The technology sector is not alone in that. The world of finance has had to be equally creative to accommodate the marketplace.
Investors keep changing in their objectives. In some years, some decided to primarily protect their principal. In other years they want to maximize gains. Along with that they seek to reduce their tax burden.
In addition, the external environment keeps mutating. Factors like the value of currencies, interest rates, price of commodities, GDP growth in emerging markets, and political hotspots can be in flux.
Your investment choices should let you take financial advantage of those shifts. Before they didn't. You were locked into core tracks of investment vehicles. Now you can open your strategic planning to fresh options for potentially building wealth and reducing risk.
Now that help is available...
Whether you have a dollar or a million dollars in your retirement account you will be able to explore the value of a real adviser simply by visiting the Self Directed Brokerage Account adviser contact site. From this site you can begin to take advantage of the features of your retirement plan. If you wish you can download a fact finder sheet that can be used to create your personal retirement financial plan (you can also upload it from here when complete)
Most company retirement plans are eligible and more are being added every day.
Look for my next post - Worry About Money? A Lot of Energy But No Gains
To learn more about Rick Willoughby, view his Paladin Registry research report.
Originally posted on PaladinRegistry.com.
About the Author: Rick Willoughby, AWMA®, AAMS® is a Registered Principal offering securities and advisory services through Independent Financial Group, LLC, a registered broker-dealer and registered investment advisor. Member FINRA and SIPC. Independent Financial Group, LLC and Symphony Financial Services, LLC are not affiliated. We offer retirement account management strategies based on the goals, objectives, risk tolerance, needs, and time frame of the participants. Our retirement account management options are appropriate for a wide range of participants; whether it is a new participant who is just beginning to save, or it is an established account for the participant who has substantial retirement savings and is preparing to retire. I'm a news junky, enjoy playing music, spending time with my wife, Nataliya, our children and grandchildren. They can keep me busy for days! Follow Rick on Facebook.