As indicated earlier, many of today's pre-retirees have neither the income increases nor the employment stability enjoyed by past generations. Plus, employers have shifted the risk of preparing for retirement to their employees by replacing defined-benefit plans offering guaranteed monthly retirement benefits with defined-contribution and 401(k) plans, which have no such guarantees.
The following Pre-Retirement Investment Primer should be part of every consumer's financial education.
Diversify & Asset Allocate to Boost Growth & Reduce Risk
The right combination of investments depends on the client's age, assets and ability to tolerate risk. Also, as a general rule, professional money managers recommend putting assets into various equity and fixed-income investments, and adjusting the allocation as investors grow older or their situations or objectives change. Consider these examples:
- Younger people (married or single, with or without children) should generally be putting more of their money into aggressive, equity-type investments seeking long-term growth (such as stocks, stock mutual funds or variable annuities). They may be volatile in the short run and values may fluctuate, but long-term performance (20 years) tends to be consistently good.
- For married couples or single parents, the asset mix can still be primarily weighted toward equities, but some additional money might be moved into fixed-income investments (bonds or bond funds or fixed annuities) and, to a lesser extent, cash equivalents (such as money-market funds or CDs).
- People who are within 10 years of retirement should be balancing their assets based on how well their investments have done over the years and how much income they anticipate that they will need in retirement.
