Filed Under:Annuities, Sales Strategies

5 retirement planning issues to watch

Remember when retirement planning was easy?

Back in those heady days, retirement was preceded by you working at the same company for 30 years, retiring, and then taking it easy on the golf course as your monthly check found your mailbox. Just a simple scenario, right?

drowning in retirement1. In a growing freelance economy, retirement concerns abound.

Warren Buffett2. Warren Buffett to heirs: Put my estate in index funds.

It may seem odd that the world’s greatest “hands on” investor, who has routinely outperformed the stock markets since 1965, recommends to the heirs of his estate to do the opposite. 

robo advisor3. The robo-advisors only got it half right.

Numerous studies suggest that investors who go it alone earn lower returns than market averages. But the big firms, like Merrill Lynch, Wells Fargo Advisers and Ameriprise, also charge high fees for their services. 
 
A new breed of investment advisory firm has successfully come to the market in the last few years, offering low-cost investment methods to everyone, for a fraction of the cost of established incumbents. 
 
But while the investment methodology being recommended by these firms is sound (broad diversification within low-fee index funds), investors sacrifice the invaluable one-on-one expertise that a seasoned professional investment advisor can bring to the relationship. Rebalance IRA has developed a third model – one that lives between these extremes of do-it-yourself, one-size-fits-all and conventional wealth management firms  – providing hands-on advice but also relying on technology to keep fees low. 
 
“Our clients can’t get what they need through an online investment firm, and they certainly don’t want to pay the high fees associated with some of the big industry players,” says Mitch Tuchman, co-founder of retirement investment advisory firm Rebalance IRA.

college tuition4. Getting schooled – investing in college over retirement may not make the grade.

It can be an agonizing decision – should parents make every effort to pay for their children’s college education, or focus on their own retirement nest egg?
 
Most parents naturally will gravitate towards taking care of their children first in order to give them the best education that the family can afford.
 
According to Rebalance IRA co-founder Scott Puritz, this approach, while laudable, is usually not in the family’s best long-term interests – especially considering the woeful statistics about average family savings rates in the United States.
 
“Saving for retirement has to come first,” says Puritz. “College tuition can come from a number of places, such as scholarships, grants, loans and student income. For most people, retirement nest eggs come from one place – decades of saving.” 
 
Instead, Puritz advocates the unpopular, but probably more prudent path – funding retirement first. “It’s similar to what they tell you on an airplane – always secure your own oxygen mask first.”

conservative can hurt you5. For retirement investing, being conservative can hurt you.
 
The old maxim for prudent, conservative investing is to hold your age as a percentage in bonds, e.g. a 50-year-old holding 50 percent of his or her retirement savings in bonds/fixed income
 
But this approach to retirement investing isn’t just outdated, it’s downright dangerous, says Mitch Tuchman, co-founder of retirement investment advisory firm Rebalance IRA. 
 
Interest rates are at historic lows, long-term bonds can be deceptively risky investments, and Americans are living much longer. This overly conservative approach doesn’t just plague older investors, says Tuchman. 
 
Those in their 20s and 30s have already been exposed to several highly traumatic market events, such as the Great Recession, the dot-com bust and 9/11, and these experiences have created a large group of young investors who are overly cautious.  A better approach is to select portfolios that include multiple asset classes, and deploying index funds to match in each class.

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Nichole Morford

Nichole Morford
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