Tips & Advice
Planning for Retirement: What You Can and Cannot Control
Presented by the Financial Advisors at Apple Financial Services LLC, through CFS*
As you plan for retirement, you must acknowledge that certain factors are beyond your control. As much as you would like to influence or change them, you have no say over them.
So, what can you control? Primarily, three things: the way you save; the way you manage risk; and the way you will spend your savings.
The way you save may be more important than the way you invest. Every saver hears about the benefits of an early start, and those benefits can be considerable. As an example, consider these hypothetical savers:
Erica saves $5,000 per year for 20 years at an 8% return, and thanks to time, inflows, and compounding, she turns that initial $5,000 into $247,115 two decades later. Midway through this 20-year stretch, Giovanni, Erica's co-worker, decides he will start saving too. Time is not such a good friend to him, however. If he wants to amass $247,115 (give or take a few bucks), he will have to pour in around $15,795 into his retirement account annually at that 8% yearly yield.
And as for Erica... all other variables frozen, if she saves $14,000 per year, instead of $5,000 a year, at a consistent 8% yield for 20 years, her savings at the end of that two-decade period will be $691,921 rather than $247,115.1
The way you manage your risk exposure matters. In a perfect world, taking on X degree of risk would lead to Y degree of reward. If only it worked that way. Still, a portfolio that assumes reasonable levels of risk may generate better long-term returns than a highly conservative, risk-averse one.
The inescapable truth of investing is that when you forfeit risk, you also often forfeit your potential for significant gains. To be specific, getting out of equities when the market sours puts you on the sidelines when the market rallies. Should you abandon equities in a correction or bear market, you face another kind of risk – the risk of selling low and buying high.
If you absolutely detest risk and want to minimize your risk exposure as you save and invest for retirement, then you must compensate for that lessened risk exposure by saving more, whether in cash or conservative investment vehicles. Remember that to save more, you must also spend less.
Will you plan how to spend your retirement savings? That will put you a step ahead of many retirees, who have no strategy whatsoever. You need to plan both the succession and amount of your retirement withdrawals – what annual percentage should be distributed from what accounts in what order. Four primary variables may affect your plan, and you arguably have some control over them all: your yearly withdrawal amount, your level of debt, your health, and your retirement date. You cannot control the tax code or the equities markets, but you can try to pay off debt, improve your health, spend reasonably, and work longer.
If you're not sure where to begin, don't panic. Enjoy a no cost, no obligation financial consultation with an Apple Financial Services Financial Advisor through CFS.*
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer, (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Apple FCU has contracted with CFS to make non-deposit investment products and services available to credit union members. Apple Financial Services LLC is a subsidiary of Apple FCU and is not directly affiliated with CFS.
1 - bankrate.com/finance/investing/saving-money-or-investing-more-important-over-time.aspx [12/30/15]