Don’t make the mistake of counting on high market returns to fund your retirement.
Action Plan to an Anxiety-Free Retirement – Part 1
STEP 1 | Kiss market risk good-bye with an automatic savings plan
When the stocks take a sudden plummet, many investors panic and start seeking alternate ways to ensure a successful monetary outcome. The good news is that there is a simple solution to help ensure a secure retirement regardless of the market’s ups and downs. The best part? It might even be free to you, through your employer!
Many companies are offering automatic yearly increases in contribution rates to their employees’ 401(k). Currently close to 1/3 of employers have this option, but even if they don’t, you can make a habit of gradually increasing your savings annually in the same way a “cost of living” raise would usually kick in. Maybe choose to make the increase, each year on your birthday or another anniversary that’s easy to remember.
This step might seem simple, but don’t be deceived, there is a lot of bang for the buck here! More than 70% of employees who automatically increase their retirement are on track to a more comfortable retirement, according to Rob Austin, the director of retirement research at Aon Hewitt.* And if you compare this to the average success rate of only 20% you can see why this concept is a valid consideration!
You can trick your brain…It might seem silly, but there is a psychological aspect to automatic saving that makes it less difficult. Psychologists call this behavioral quirk “loss aversion” and it’s the basic idea that it’s much harder to give up a dollar you already have in hand, than it is to “lose” it before you ever see it. Somehow the sacrifice isn’t felt as intensely when saving is carried out this way.
Risk is reduced… And obviously, saving more helps you to steadily build your wealth. But let’s circle back to the issue we mentioned in the title of this article: Being immune to market highs and lows. If you have a steadily growing savings plan you are less dependent on high returns from the market.
Here’s an example. Imagine Jane, a 30 year old, starts saving 15% of her salary. If she works until age 67 she can reach a preset goal of having enough money to replace 75% of her pre-retirement income, even if her investments only deliver at 6% or less. Now Jane is free to invest however she wishes. Can she take a plunge and dive into something risky? Sure! Or what if she wants to conservatively and carefully invest so as not to lose anything? Play it safe. Either scenario works because she has the guaranteed savings plan to back her up, regardless of what happens with her investments.
STEP 2 | Don’t be scared to ask for help!
No matter your age or the stage of retirement planning you are currently in, you will learn and grow by seeking help from those experienced and trained in these areas.
Many financial planning companies are glad to do an annual financial review to help you determine where you currently stand and what you need to do differently.
Whoever you turn to, make sure they gather ALL the data. Don’t let them advise you without a full picture of your financial situation. This includes your life and health insurance and ANY investments you have, plus the simple stuff, like your savings bonds, and rainy day cash in your savings account- and don’t forget all your expenses as well. Which ones will continue into retirement, and what extra liabilities may you take on in the future? It all matters and it’s important that whoever is giving advice has a full understanding and awareness of exactly what you have to work with.
The bottom line: Don’t be afraid to ask questions and be innovative with the way you map out your future! The younger you start the better, but it’s NEVER too late to make changes that can help you in the future.
Cornerstone Wealth Advisory Group has a team of professionals dedicated to retirement and financial planning. Contact us for more information and to schedule your annual review. (always at NO COST to you)
*This firm defined success as saving 11 times salary by age 65