Originally presented in the Spring 2014 edition of iParticipate, this article is available for download through the PDF link to the left.
1. “I can’t afford it.”
Sure, you have a lot of competing uses for your money. Some spending is locked in every month, like paying your mortgage, and some of your dollars go to nice-to-haves, such as eating out or taking a weekend trip. It may seem that nothing is left over. Saving for retirement seems impossible, given your present lifestyle.
Someday, you will have to get by without a paycheck. While Social Security can provide monthly income, it is not likely to replace your working-years salary. If you make it to retirement, you’ll probably live to be close to 90, and you can expect that some expenses, like health care, will go up.
2. “I have years before I need to think about retiring.”
As we move through our 20’s, 30’s and 40’s, caught up with jobs and families, it’s very easy to put off retirement planning. But the most powerful aid to retirement is math and time. The longer you have until retirement, the more you can build up your savings through compounding and the less you’ll need to invest each month.
The earlier you start, the better. Even if you are just a decade away from retirement, you can set aside a good chunk each month and you can boost your savings by committing to increase your savings amount each year.
3. “I don’t know how to get started.”
This is simple: Go to the next retirement plan enrollment meeting held by your company’s retirement plan. The enrollment meeting, which usually takes an hour or less, will break down the steps you need to take to get started saving in your plan. This includes providing education about how you generate retirement income, select investment options, and determine what percentage of your salary you want to contribute to your account. You’ll also learn about the fees and expenses associated with your account. Contact your plan administrator for more details on how to join an upcoming enrollment meeting.
4. “Planning for retirement is too big for me to tackle right now.”
Retirement planning is, in actuality, life planning. You need to ask three essential questions: What do you have? What do you want? How do you get what you want? These questions can be stressful, but even so, they are important. Wishing won’t make the problem go away. Try taking small steps by attending a financial education seminar offered by your employer or discussing your situation with a qualified financial advisor.
By putting together a more measured financial game plan, you can set goals about your saving and spending habits.
5. “Stocks and bonds are risky.”
There is no avoiding risk in investing. Even stashing cash in your mattress doesn’t relieve you of the risk of a fire or inflation, which nibbles away at your purchasing power. Stocks, and mutual funds that invest in stocks, can be one of the best ways to beat inflation over the long haul. The risk of investing in stocks, while never zero, decreases the longer your time horizon for investing in them. Bond investments also carry risks, but nevertheless deserve a place in every retirement portfolio. This is especially true for those nearing or entering retirement age. Bonds can offer a steady flow of income and often produce an attractive rate of return.1
1. The bond market is volatile, and fixed income securities carry interest rate risk, inflation risk, and credit and default risks for both issuers and counterparties. Additional risks apply to international bonds, emerging markets bonds, and high yield bonds. Risk information for fixed income products may be found in the prospectus or other product materials, if available.