Financial Planning
First Step - Reality Check - Retirement Savings
According to EBRI's 2007 Retirement Confidence Survey, America's worker say:
• 70 percent feel very or somewhat confident that they'll have enough money to afford a comfortable life in retirement.
• 66 percent report that either they or their spouse have saved something for retirement.
• 68 percent are "not at all" or "not too" confident that Social Security will continue to pay.
• 13 percent have no idea how much money they'll need for retirement.
• 49 percent of those who have not saved are nevertheless confident about a comfortable retirement.
• 49 percent of workers of all ages have less than $25,000 in retirement savings.
Many recent articles say there is a big disconnect in what how people perceive they are prepared for retirement and the actual facts about how much they have saved. By all account people have not saved enough for their retirement. Unlike our parents, social security may not be there forever. So the first step is accumulating assets and savings.
Retirees - Avoid Risk and Perserve Assets
Don't all feel like to putting all our hard earned assets in a bond and forgetting about it. You feel like reducing all risks for your investments when we are nearing retirement but experts say that is not a good thing to do. If you put all your assets in bonds, treasury's or CDs then you can get a fixed rate return. But rates changes and the time when you need to roll over maternities may be the time when rates have dropped, maybe considerably. Then your returns will be much lower. Also inflation will cut into that interest you have been receiving making the purchasing power a lot lower.
Some stocks in your portfolio should help you keep pace with inflation. There are many no load balanced funds like Oakmark Equity Income Fund - OAKBX and American Century Equity Income - TWEIX, that will help your portfolio keep pace with good returns while offering low risk to market declines. Also with the dropping dollar, a good idea is to put a portion of your portfolio in a hard currency fund like Mark Hard Currency Investor Shares - MERKX, a no-load mutual fund that invests in a basket of hard currencies from countries with strong monetary policies assembled to protect against the depreciation of the U.S. dollar relative to other currencies.
Also keeping your portfolio well diversified with Asset Allocation is a key element in your long term success. Investing in broad categories of investments such as stocks, bonds, real estate, hard currencies, and money market funds will help you stay diversified and balance your returns to lower risks. Pick up a good book about Asset Allocation like "All About Asset Allocation" by Richard A. Ferri, CFA and this will give you everything you need to know about the subject.
My good friend Jim McCoy, somewhat of an investment guru, recommends the following asset allocation:
ASSET CLASS MODERATE % AGGRESSIVE %
S&P 500 17% 17 24
Mid & Small Cap 15 22
Micro Cap 2 3
International 11 16
REIT 5 5
5 YR. Treasurys 40 25
Cash 10 5
100 100
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