Oh, for the good old days when funding a retirement was fairly simple and straightforward. You just worked for the same employer, called it quits at 65 and collected a pension. Add in Social Security benefits and you were set for the rest of your life.
Today’s financial reality for many retirees is much more complicated. Here’s why:
Pension plans are all but gone – Retirees who received pensions in the past not only received a check every month, they didn’t have to worry about where the money came from. That was their employer’s job.
Those plans are now rare, replaced by 401(k) plans, IRAs and other avenues for saving and investing. While there are advantages, these newer retirement plans force the individual to handle all the investment decisions, not the company providing the pension.
Social Security is less secure – Social Security was created on the assumption that a large number of workers (paying Social Security taxes) would support a small number of retirees (receiving Social Security checks). In 1945, the ratio of workers to retiree was 42 to 1. Today, that ratio is down to fewer than 3 workers for every retiree. That’s one of the reasons that there’s so much concern about Social Security’s ability to keep paying benefits at the levels paid in the past.
Longer life spans – Americans are living longer than ever: In the mid-1960s when Medicare started, the average life expectancy was 70.2 years. By 2010, the average had reached 78.4. While longer lives are great, they also raise new challenges to ensuring retirees don’t outlive their investments.
A top concern is keeping ahead of inflation, which can eat up savings over the course of a long retirement. Stocks historically have been one of the more effective investments for that purpose, so advisors are now reconsidering how much of a retiree’s portfolio should be in stocks.
Conventional wisdom dictated that retirees invest mostly in bonds because they provide predictable income. Stocks, on the other hand, can move up and down in value quite quickly. This makes them more challenging to retirees, who have less of a timeline to recover from market downturns.
But now some financial experts believe that stocks are important for retirees as well as other investors. They believe that when stocks are combined with other investments that don’t cycle up and down so dramatically, stocks can offer some of the guard against inflation that is increasingly important.
Because of the complexity of today’s financial markets, it’s dangerous to rely on a single theory or plan. Each person’s financial situation is going to be different. Even though it’s ultimately up to you to make decisions about your money, it usually is helpful to meet with a qualified financial consultant as you decide where to invest your money during retirement.
This article is provided by the financial advisors at Benjamin F. Edwards & Co. in Chesterton, IN, and was prepared by or in cooperation with Benjamin F. Edwards & Co. The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. Benjamin F. Edwards & Co. does not endorse this organization or publication. Consult your investment professional for additional information and guidance. Benjamin F. Edwards does not provide tax or legal advice.
Benjamin F. Edwards & Co., Member SIPC and FINRA