Obstacles to Retirement Security and How to Overcome Them
What comes up must come down.
It’s a common excuse many people give for not investing in the stock market.
But even though they accurately recognize market fluctuations and significant dips, they often overlook a known fact: the stock market has consistently shown to be a very steady and stable long-term investment.
Instead, the real threat to many people’s retirement security is often related to long-held misconceptions and behaviors.
- Delaying retirement planning. It’s hard for people to look ahead in the midst of daily expenses, life changes, and job shifts. Apathy and disinterest also lead to procrastination. Unfortunately, the later people begin retirement planning, the more they will have to forfeit from their paychecks to secure sizeable nest eggs. Thanks to compounding, the earlier an investor begins to contribute to his retirement account, the more he will accumulate. Simply put, young investors have more time to recover from market dips and benefit from the resulting upswings. Still, it’s never too late to make a difference. Fifty-year-olds can boost their retirement savings by revising budgets, downsizing and committing to consistently saving each month.
- Having poor financial literacy. Investing can appear tricky and intimidating. But research shows that even a basic understanding of the financial concepts helps people attain better retirement outcomes. Young people are particularly at risk as they enter the job market with little or no financial knowledge. They risk losing out on valuable investment time by not taking steps to increase their financial literacy. Fortunately, many employers are beginning to offer more resources to educate their workers about retirement plan options. Online seminars are also readily available to help consumers become better educated. People should start slowly and focus on gaining understanding of basic concepts such as: investment classes, asset allocation, and inflation. Women, who are considered to be far less likely to be financially prepared for retirement, can benefit greatly by addressing their knowledge gaps.
- Setting unrealistic expectations. An overly-zealous investor may dive into the stock market with expectations of immediate returns. When he fails to see fast gains, he becomes discouraged. A better strategy is to develop a long-term plan for slow and steady growth. By assessing needs, creating a savings budget, determining personal risk-tolerance, and diversifying, an investor is likely to see steady gains. To create such a balanced portfolio, investments should be spread amongst the three main asset classes: stocks (equities), fixed income (bonds), and cash (CDs, or money-market accounts). How much an investor should place in each category will differ based on his age, needs and income. A prudent and experienced advisor can provide critical advice in preparing a realistic retirement roadmap. Annual reviews are also vital in ensuring that asset allocation is still aligned with risk tolerance levels, changing needs, and market shifts.
A good retirement plan also anticipates inflation by adjusting savings goals or reducing spending accordingly. An emergency fund and a commitment to regularly updating financial decisions as changes arise also increase the likelihood of lasting financial security.
At Silverman Financial, we understand the obstacles to retirement planning. We provide professional expertise to support ongoing growth and ensure golden retirements via regular client meetings and complimentary initial consultations.