Posts tagged retirement earnings
5 Things Putting Your Retirement at Risk
Jun 17th
Many of us want to enjoy a comfortable retirement. We think about what we can do, and we save up, doing our best to build up our nest eggs so that we can do what we want in retirement (or semi-retirement, as the case may be). However, while you are think about your comfortable retirement, you might actually be missing some of the items that put your retirement at risk. Here are 5 things that could be putting your dreams of a comfortable retirement at risk:
1. Inadequate Savings
Many of us are putting something away for retirement. But is it enough? Many of us have an unrealistic view of how quickly our money will grow, and by how much. While the most important thing is to get started with retirement saving, if you are still only putting in $50 a month after you have a better job and a company match, you are doing your retirement a disservice. Get real about how much you need to be setting aside. There are retirement calculators out there from CNN Money, Kiplinger and Bloomberg, among others. At the very least, use a simple savings calculator to estimate how your money will grow.
2. Not Securing Income Streams for Retirement
Once you quite your main job, your steady income evaporates. This means that you need new income streams. Whether you plan to live off interest (and withdrawals) from your nest egg, or whether you have another plan, you need to start thinking about income now. If the market crashes right before your retirement, earnings from your nest egg probably won’t be adequate. Think about income investments, how you can get royalties, how you can get steady income from doing a web site, or even how you can work part time or work online in order to provide a little extra income. Think about where your income is coming from, and remember that government income benefits might be cut in the future, so relying on that for income might be a problem.
3. Inflation
Inflation is a largely silent problem. It erodes your real returns, reducing your buying power. If inflation is growing at 3% a year, but you’re only seeing an increase of 2% a year, in real terms you are actually losing money. It is important to do what you can to find ways of creating a portfolio that at least keeps up with inflation, preferably beating inflation handily. You can protect part of your retirement portfolio with help from inflation protected securities in the form of special government bonds, but it is a bad idea to put everything in such low risk/low yield securities, since you risk winding up with inadequate savings.
4. Debt
Making interest payments, and saddling yourself with obligations is a surefire way to risk your retirement. Instead of putting money to work for you, debt takes your money and puts directly into someone else’s pocket in the form of interest payments. Paying off as much debt as you can before retirement, and carefully living within your means to avoid incurring further obligations is necessary if you want a successful retirement.
5. Long-term Care
It seems a long way off, but long-term care is a very real possibility. With longer lifespans, the chance that you will spend time in a long-term care facility has increased. While there are some government long-term care facilities, many of them do not provide the comforts that many would like. Other facilities, though, can be expensive and drain your accounts quickly. You can consult with a financial professional to help you figure out how to provide for this possibility with long-term care insurance, annuities or some other means.
Choosing the Right Types of Investments
Jun 1st
If you have a regular, traditional type of pension plan, then your employer is responsible for making all of your investment decisions in your place. With most other types of retirement plans that are out there, however, you are the one that is in the driver’s seat. Some people believe that it is intimidating to be in charge of their investment options but it really does not have to be. There are a number of different investment options that are available to you when it comes to putting together a retirement plan including stocks, mutual funds, bonds, ESOPs, annuities, cash equivalents and more.
Putting all of your money into a single type of investment is going to increase your risk of experiencing loss if the investment does not perform in the way that it was meant to. What this means is that you should make a point to spread your money out over a number of different types of investments in order to benefit the most.
Stocks, Mutual Funds and Bonds
When it comes to investing for retirement, it is important for you to look at things on a long term basis. Because your retirement earnings are going to grow in a tax deferred way and because it is going to be many years before you are going to make any withdrawals, retirement plans tend to be best suited for the most aggressive investing that you can muster, including for example mutual funds and stocks. Do not make the mistake of putting every dollar in money market funds or GICS which are Guaranteed Investment Contracts, but rather you should be diversifying your investment portfolio so that you can balance the risk with the reward, and you should definitely come out ahead in the long run as a result.
This does not mean that you should not choose your investments as carefully as you possibly can, however. If 80 percent of all of your retirement funds are invested in mutual funds and stocks, then most of it should be placed into funds that are well established and that have a history of a solid level of performance. If you are looking to become more aggressive with some of your money then you should place a very small percentage of your investments in stocks into higher risk types of funds to see how they can perform.
ESOPs
Employee Stock Options or ESOPs give you a great opportunity to own stock in whatever company you are being employed by. These ESOP plans are capable of benefiting you greatly, but there is a vitally important caveat for you to consider which is that you should never, ever put all of your eggs into one basket. There are thousands of employees that did this, and they ended losing out on all of their retirement funds because the stock for the employer eventually lost value as a result of shaky or corrupted accounting practices hiding serious problems with financials.
Photo Credits: tiffany bridge
Originally posted 2009-08-19 03:31:15. Republished by Blog Post Promoter
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