RetirementAugust 5, 2020 -
Categorized in: IAG News
Twenty years ago today you could purchase a 10-year Treasury bond and earn a snappy 5.97% per year for the next 10 years.
If you had saved up $500,000 for your retirement, your nest egg could provide you with $29,850 per year of income with minimal risks to your principal.
Today you can purchase a 10-year Treasury bond and earn a paltry 0.56% per year for the next 10 years.
Your $500,000 nest egg can now provide you with an underwhelming $2,800 per year of income with minimal risk to your principal. To achieve the same $29,850 of annual income that was available in 2000 with minimal investment risk your nest egg would need to be a whopping $5,330,357 today.
Retirement income options have been turned upside down. You cannot expect your retirement plan to be similar to your parents’ retirement plan. You will likely need to use the following levers to improve your odds of successfully retiring on your terms:
- Save more/spend less. It is absolutely un-American, but you can choose to live comfortably below your income and maximize your retirement savings. One of the key factors over which you have control is how much you spend. Granted it is not easy in a consumer-based society with an entire industry dedicated to making you unhappy with what you have so you will buy something else, but spending less and saving more is absolutely the most effective way to improve your long-term financial well-being.
- Take more risk. To achieve higher returns an investor must generally be willing to accept higher risk to their principal. With Treasury bond yields at record lows, you can choose to take on more investment risk to potentially create the nest egg and income that you will need to retire. This sounds like an easy solution, but in addition to investment risk you are also taking on behavior risk that you – at the least opportune and most damaging time – will decide you took on too much investment risk and (after losing significant principal) abandon your long-term riskier plan in favor of short-term safety. It only takes one single moment of weakness over a lifetime to undo your entire retirement strategy.
- Rely on the government. Previous retirees could rely on a “three-legged stool” for retirement income – pensions, savings, and Social Security. With pensions all but disappearing for the next generation of retirees, they are left with a two-legged stool. Thankfully, our form of government gives the governed a say in its operations, and future retirees could vote for political candidates that support supplementing their retirement income with the cost being covered by future generations. The likelihood of this approach increases with every American that chooses not to use option 1.
Quote of the week: Morgan Housel: “You can’t control what the economy’s going to do next. You can’t control what the Fed is going to do next. The only thing you can control in investing is your own behaviors. And when you realize that the one thing you can control is the thing that makes the biggest difference over time that, I think, is a pretty optimistic realization.”
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. Investing involves risk including loss of principal.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
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