Retirees need to earn more on investments
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Eric Soiland, CIMA: In his own words
Typically, most people look at risk as the potential for fluctuation
or loss in an investment portfolio. Another risk is running out
of money before they die. That could be due to inflation, health
care costs, long-term care costs or unforeseen events. I try to
get them to picture in their mind the best portfolio we can put
together that will help them maintain their current lifestyle. Over
a 20-, 30- or 40-year retirement you need to have growth to counter
inflation. A lot of individuals automatically think that when they
get near retirement they need to become very conservative. That
may have been true many years ago when people died five or 10 years
after retirement, but it's not the case now.
I don't twist anybody's arm; I just explain the trade-off.
If you want to sleep extremely well now then the trade-off may be
that down the road you won't be sleeping well because your portfolio
hasn't kept up with inflation. If you're willing to take a little
more risk many times you can greatly enhance the odds in your favor.
I try to get the overly conservative investor to see the sense of
a more diversified, more aggressive portfolio.
What is most important, in my opinion, is the five years before retirement and the five years after retirement. It's a zone, a 10-year window, that's very critical for most retirees.
A lot of planning goes into the five years leading
up to retirement. That's when you want to review your current assets,
estimate anticipated assets, determine your expenses, check your
insurance coverage and work up a plan with your financial adviser
to see if there's a gap that needs to be overcome. Then, if you
can get through the first five years of retirement without any really
negative setbacks to principal, there's a good chance you can maintain
your current lifestyle in retirement if you stick with a prudent
The sooner people get serious about retirement, the better. If someone has 20 years to go before retirement and they start planning now, they're in a much better position to know what they need to save and to be able to hit that goal than someone who's two years away from retirement and is finding out they haven't done a very good job.