The Choices We Make

It’s no surprise that in a survey released in April by the American Institute of CPAs, the number one worry of Americans planning for retirement was running out of money.  The next most prevalent concerns were health care costs and deciding how much to withdraw from assets for retirement income – both of which are closely related to the main concern.

Therefore the main objective of saving should be to build wealth for retirement.  Not college funding for children, not vacation, not anything else.  We all want to take care of our families and make them happy.  But not at the expense of our being able to live our lives after our working years without being a burden to them.  We are not saving enough for our retirement.

Everyone should be contributing at least 10%, preferably 15% of their pay into their retirement savings.  Until you can achieve this level of retirement savings there should be no other savings goal.  Your children can borrow money for college but you can’t borrow to fund your retirement.

As for allocation, these funds should be allocated in the 60 – 80% range in stocks up until age 55 and then begin to scale back to around 50% at age 70.  Many folks are concerned about the market fluctuation of stocks and often confuse market fluctuation with risk.  Let me tell you what risk is.  Risk is the ever rising cost of living that will consume any chance you might have of living a reasonable standard of living in 20 or 30 years.  That’s risk.  Risk is not the temporary loss of account value on your retirement plan statement.  It’s only a temporary loss if you don’t sell anything and why on Earth would you be selling stocks in a temporarily declining market?

The average retiree is now 62.  They were born in 1953.  In 1953 the S&P 500 Index was at $26 (that’s not a typo – it was $26) and the dividend paid by the stocks in the index was $1.40 per year.  Today the index is near $2000 and the dividend is $39.  That’s an increase in income of over 2700%.  As long as you don’t confuse temporary decline for loss and sell at the wrong time, name one other asset that provides an ever increasing income stream that you can’t outlive.

You have a choice.  One path leads to prosperity.  The other not so.  Let us know if we can assist you in making the right choice.