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June 30, 2014
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?
Well, as you know, bettter than I, those days are gone. Unless someone finds a time machine, they're not coming back.
In other words, we need to find other ways to view and prepare for retirement. In the following pages, the experts at Rebalance IRA offer five issues to keep an eye on regarding retirement planning.
1. In a growing freelance economy, retirement concerns abound.
The independent contractor workforce has been growing dramatically over the last decade, with little sign of slowing as asset rental and task-sharing sites like Uber, Airbnb and TaskRabbit further open the floodgates to new ways of working.
But despite their success, self-employed individuals often face a big-picture financial problem. Without the structure of a group retirement program like a company 401k, it’s easy to become lost in the maze of retirement investing options.
“The Solo 401k is one of the best kept secrets available to self-employed professionals,” says Scott Puritz, co-founder of retirement investment advisory firm Rebalance IRA.
“It’s not talked about enough and it’s relatively new, but for some people this is the best solution that really evens the retirement playing field for everyone who doesn’t work for a major corporation.”
2. 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.
But that’s exactly what Buffet says in his annual letter to Berkshire Hathaway shareholders: “My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S & P 500 index fund…the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”
Anyone planning for his or her own retirement should take Buffett’s advice to heart, says Mitch Tuchman, co-founder of retirement investment advisory firm Rebalance IRA. Low-cost, index-driven retirement investing is a proven recipe for success.
“Too often investors think that they can beat the market, despite substantial research saying that this is highly unlikely,” says Tuchman. “The truth is, index investing provides a far superior path toward long-term growth. Even Warren Buffett agrees.”
3. 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.
4. Getting schooled – investing in college over retirement may not make the grade.
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.”
5. For retirement investing, being conservative can hurt you.
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.