Retirement Planning - Part Three Retirement Investing and Setbacks

Whether a person has many years until retirement or it is just around the corner; investing

for long term growth is essential. In an earlier article, it was mentioned that proper balance

between the basic asset classes - stocks (equity assets) and bonds (fixed income) - helps to

decrease market risk. Essentially, the higher the allocation to high quality bonds the lower the

market risk. In addition, diversification within those basic asset classes further decreases risk and

provides the best potential for above average returns.


Most importantly, the focus should be on long-term growth potential with less focus on

short-term fluctuations in the market. It is not always easy to maintain that perspective when

some people in the investment business use scare tactics to get retirees and others to invest too

conservatively or into certain insurance products and high cost investments. Be a cautious

investor and ask questions.


Most people live in retirement for a very long time, so it seems more important to protect

against loss of purchasing power from long term inflation than it is to worry too much about

short term market risk. In other words, retirees need to beat inflation to have enough cash flow to

meet their living expenses, and equity assets accomplish that objective very well over the long



A few potential setbacks on the road to retirement include:


❖ Market volatility - The best way to handle market volatility is to continue to save

and invest regardless of market conditions. Maintain a high quality, low cost,

diversified strategy, and try not to worry too much about the short term.


❖ Unforeseen emergencies - We all know or have personally experienced

unforeseen emergencies. Things happen, such as, a job loss or unexpected illness

or a divorce or death. In these instances, try to avoid using retirement savings

especially tax deferred IRAs or 401(k) plans.


❖ Saving too little or starting too late or both - A financial plan assists people in

looking at their financial goals and cash flow needs. It assists a pre-retiree in

developing a prudent strategy and defining realistic expectations. Save as much as

possible and try not to procrastinate when it comes to retirement planning.


❖ Multiple goals at the same time - For example, it may be more important to save

more towards retirement rather than paying for college for your children. Other

college funding options exist, but that is not the case for having enough retirement

income. The key is to create balance by looking carefully at your objectives

through planning. In other words, prioritize your goals and be realistic.