Home' Trinidad and Tobago Guardian : September 21st 2014 Contents SEPTEMBER 21 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG21
Compared to the length of retirement, 15 minutes
is no time at all. But that s all you need to learn the
basics of developing a plan to make your savings last
as long as you need them. Still, many investors don t
take this time---putting their retirement in jeopardy.
Investors biggest errors often occur long before
any buying or selling takes place. They tend to have
poorly defined objectives, no real sense of their time
horizon (how long they need the money to last) and
don t quite understand that any investment has risks
and returns to consider.
To start, ask yourself how long you ll need your
Most investors need their savings to last as long
as they do---sometimes longer if they d like their
portfolio to support a younger spouse, children or
charity after they re gone. So exactly how long that
could be for you isn t black and white. Average life
expectancies are published every year, but they can
only tell you so much. After all, an average is the
middle, and you probably aren t "average."
To get a better idea, consider your heredity---your
family s history of health and longevity. Be sure to
consider advances in health care and technology.
Merely because your father died at 70 doesn t mean
you ll do the same. Most people outlive their ancestors,
hence rising average life expectancies. Planning early
for a longer life is smart.
You could also be underestimating the amount of
cash flow you ll need after retirement.
Maintaining your lifestyle becomes much more
costly if your expenses are heavily tilted to categories
of goods or services with fast-rising prices---like
healthcare. Overall inflation has averaged about 3.0
per cent annually---a retirement plan that doesn t
account for inflation has a significant hole.
4 ways to avoid
running out of
money in retirement
2. d The estimated average pension pay-
ment for all retired workers is roughly
$41,000 a year. True, pension payments are
sometimes adjusted but neither of those
amounts would allow most people to live
cent of pre-retirement income is OK for
setting a savings target when retirement is
many years away. But once you re within
a decade or so of retirement, you want to
get a more accurate assessment of your
likely expenses. The Retirement Income
Planner tool in Real Deal Retirement s Retire-
ment Toolbox can help with that.
4. a True. No trick question here. A small
head start can indeed make for a much larger
nest egg in retirement.
5. a The key is to build a portfolio that s
truly diversified and that gives you a shot
at the returns you ll need without taking
too much risk. Or too little risk, which is
the problem with huddling in CDs, Treasury
bills and the like. They re just not likely to
generate high enough returns to allow you
to build an adequate nest egg or assure it
will sustain you through a long retirement.
6. c Signing up as soon as possible and
saving at least 10 per cent but preferably 15
per cent is the best way to get on track to
a secure retirement. Yes, you do want to
take full advantage of any employer matching
funds. But in many plans contributing only
enough to do that may leave you short of
a savings target of 10 to 15 per cent.
7. c or d is correct. If your new employer s
pension has good, low-cost investment
options, you can move your old stash there.
If your new employer doesn t have a plan
or the investment choices aren t so hot,
move the money to an annuity or private
pension plan. The key, though, is to do this
via a "direct" or "trustee to trustee" rollover
so the money goes directly to your new plan
or rollover account. You can have the money
sent to you and roll it over to a plan within
60 days, but that route involves several
drawbacks and hassles that you can avoid
by going direct.
8. b Concentrating more than, say, 10 per
cent of your portfolio in any single stock
increases risk more than it does potential
return. And having both your job security
and retirement security riding on the for-
tunes of one company just magnifies the
potential harm. If you doubt that, I have
one word for you: Enron.
9. b Monte Carlo simulations attempt
to give you a more realistic sense of how
your retirement strategy might fare by intro-
ducing volatility and variability into their
projections. You re still only getting a fore-
cast, not a guarantee, but by changing
assumptions (saving more, retiring later,
whatever), you can get a better idea of how
you might be able to improve your retirement
10. c Granted, "a" may be more fun, but
it s more likely to leave you worse off. You d
be surprised at how much lost ground you
can recoup even in the home stretch to
retirement by ramping up your savings rate,
delaying retirement and focusing on getting
the max out of pension.
Give yourself 10 points for each correct
answer and see assessment of your retire-
0-30: No need for you to worry about
retirement. Based on this score, you ll have
to work for the rest of your life---unless you
start saving and begin doing some serious
planning for retirement now.
40-60: You know more about retirement
planning than many. But that s not saying
much. To improve your retirement outlook,
start putting some money aside and create
a retirement strategy.
70-80: Not bad. You ve mastered the
basics. As long as you stick to what you
already seem to know works best, you should
90-100: Congratulations. Either you obvi-
ously know how to create a retirement plan
and set it in motion.
CNNMoney.com and MONEY Magazine
Make savings a priority
From Page 20
Investors' biggest errors
often occur long before any
buying or selling takes
place. They tend to have
poorly defined objectives, no
real sense of their time
horizon (how long they need
the money to last)
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