In 2012, the investment company Fidelity recommended 8 times your salary. This year, they said it should be 10 times. And gigantic asset manager BlackRock recently advised that whatever amount you were thinking you needed to accumulate, you’ll need an extra 10% to meet your expenses in retirement.
“Everyone should be aware that retirement is a moving target,” says Chip Castille, chief retirement strategist at BlackRock in New York.
Events such as Brexit and the sudden drop of interest rates affect the price of retirement, Castille says. Even though the markets have settled in the wake of uncertainty after the Brexit vote, interest rates remain very low — and that means your money won’t go as far as it does when interest rates are higher.
RATE SEARCH: Find high-rate IRA money market accounts to kick your savings up a notch.
What nearly everyone gets wrong
Most people make 2 mistakes when they try to figure out how much they’ll need for retirement, Castille says:
- They overestimate how much money they’ll have.
- They underestimate how long they’re going to live.
But it is possible to pin down a specific sum and hit your goal. First, Castille says, find your target. That means how much you need to spend per year in retirement. Next, start tracking. You don’t have to have a BlackRock account to use the BlackRock CoRI tool, which assesses the price of retirement for people age 55 and up. The calculator uses actuarial data — the same info used by large pension plans and insurance companies — to wipe away people’s personal misconceptions about how long they’ll live.
You put in the year you were born, and the tool calculates how long you might live. CoRI also converts lump sums into income, which most people find easier to understand.
And check out Bankrate’s plethora of retirement calculators.
Make a plan
Another way to keep yourself on track: Have a financial plan and stick to it. That’s the best strategy, says Ryan Mumy, president of Mumy Financial Advisors in Raleigh, North Carolina. Your mix of stocks and bonds should be appropriate for your risk tolerance as well as your age.
“People in their 20s should be saving as early and as often as possible,” Mumy says. Market bumps and short-term fluctuations aren’t new, so it’s key to stay diversified and continue investing steadily so you get the advantages of dollar-cost averaging. “Over time, in those times of turbulence, you’ll buy more shares at a lower price.”
Read: Retirement planning for 20-somethings.
Bonds are a bear
The common wisdom — to increase fixed income, or bonds, in your portfolio as you near retirement — could be a challenge with interest rates as low as they are. And rates could stay pretty low for a long time, perhaps 5 to 10 years, according to some experts.
Talking about “bonds” is like talking about “transportation,” Mumy says. There are many different kinds, and each carries its own risk. Depending on the type of fixed income you have, the stock market could affect your portfolio.
RATE SEARCH: Find Shop today for the best rates on money market accounts.
“During times of equity market stress, (bonds) can get hit with a double whammy,” Mumy explains. “Some (bonds) are more correlated to stocks.” Also, he says, people should realize that fixed income will bring some risk. An aggregate bond portfolio, on the other hand, has a mix of different bonds with different durations, which can smooth out some of the risk.
Consider the costs of your fixed-income holdings. An intermediate bond fund, for example, carries a lower cost and diversifies your bond investments.
Revisit, rebalance, repeat
Mumy recommends rebalancing your portfolio every now and then as you get closer to retirement. That’s the way to keep everything in line with your goals.
- Retool your portfolio to go up or down on equities.
- Rethink bond investments to soften the effect of low interest rates.
You don’t stop investing when you’re actually in retirement, points out Mumy. “It’s not like you just cash everything out and put it in the bank,” he says. That means your portfolio still needs attention in the few years before you retire and when you are in retirement.
ADVISER SEARCH: Want to make sure you’re on track to retire? Find a financial adviser today to help you do that.
0 Comments