Wednesday, February 2, 2011

Ages & Life Stages

Retirement planning has always centered around age. A 40 year old would often invest "100 minus their age" in equities. This rule of thumb for investing is still practiced today, but is certainly evolving. (In our example, 100-40 = 60% in stocks. The remaining allocation can be disbursed amongst bonds, real estate and alternative investments.)

This is all being challenged as American demographics are changing. Gone are the days where people married in the 20's, bought houses in their 30's (don't forget the white picket fence!) and had 2.1 kids. Recent reports indicate marriages have decreased 3.2% since 2000. Fathers 50+ are more common place. And, the biggest increase (%) in demographic age groups is the 100+ seniors... aka 'Centurion's'.

Just last week, we learned of the passing of 114 year young Eunice Sanborn. She was considered to be the world's oldest person by Guinness Records! No worries... triathlete and Sister Madonna Buder appears to be on her way to 100 and breaking a few records along the way (see above)!

What does this mean for retirement planning? Well, a number of things have changed. I've often penned my thoughts on limited availability of pensions. Individuals now have to provide for their own retirement. Living longer may require you to work longer. If Social Security keeps increasing the age for maximum benefit payments, there's a reason! And, being more aggressive in your investments may be required. Maybe "110 minus your age" should become the norm?

For many Americans already behind in retirement planning, a peddle-to-the-metal approach is often viewed as appropriate. Financial Advisors... like myself... are sometimes deemed to have a direct connection to Wall Street and thus will recognize when to push and when to sit in cash. Unfortunately, a short review of Financial Planning 101 will reveal this type of strategy never works. It involves market timing AND requires flawless executing on when to exit the capital markets and when to get back in. Getting both correct has probably has the same odds of winning Powerball. Basically, they're not in your favor!

A better approach today may be asset Asset Allocation Models or Target Return Funds. Both are tied into your risk tolerance and prospective retirement date. For example, a 2020 fund will offer a diversified portfolio and become more conservative as you approach your date. However, as previously mentioned, this may now be adjustment based on your lifestyle, time frame, career and current savings. A more aggressive investor may choose a 2040 portfolio simply because they plan on working longer, have longevity in their family and simply want to be more growth oriented.

Everyone is different when it comes to investing. Don't get painted into a box, but rather seek the advice of a Financial professional to determine your ideal retirement portfolio.

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