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The Changing Reality of Retirement - July 27, 2006
People entering retirement today are facing a brave new world. While prior generations relied on pensions and Social Security, new retirees will need to count much more on personal savings and investments, a reality shift that means where money is invested during retirement will need to change.
“For a long time the conventional wisdom was that as one neared and entered retirement, investments should become more conservative and one should increase the amount of a portfolio invested in bonds,” said Russell Swansen, senior vice president and chief investment officer for Thrivent Financial. “Given the longer life spans of today’s retirees, one actually needs to maintain an adequate amount of stock holdings to provide the growth needed for longer term financial security.”
The 76 million baby boomers, the first of whom are now starting to retire, will be more active, live longer and spend more on everything from travel to health care. Factoring in higher medical costs and inflation, these retirees will need assets to continue growing during later years. Instead of just drawing from a pot of money, their money will need to last as long as they live.
The risk of baby boomers outliving their assets is high, according to the 2006 National Retirement Risk Index developed by the Center for Retirement Research at Boston College. The index shows that even if people retire at age 65, tap into a reverse mortgage, and receive annual distributions from their wealth, 43 percent will be at risk of being unable to maintain their pre-retirement standard of living in retirement.
The financial services industry is responding to the very real problem of retirees potentially outliving their savings by creating investment vehicles that provide stability of income plus market growth potential to make money last longer. One example is the Thrivent Diversified Income Plus Fund, which includes all of the most important income-producing asset classes – high yield bonds, dividend-paying stocks, real estate investment trust equities and investment-grade bonds – in one investment option.
By investing in mutual funds that actively change the investment mix based on market conditions, retirees have a better opportunity to overcome the invisible risks that can erode their retirement savings. These risks, unlike the ups and downs of the market, often go undetected, and include inflation, being overly conservative and not rebalancing one’s portfolio on a regular basis.
Baby boomers are increasingly aware of the possible perils of retirement. According to research conducted by Harris Interactive, the number one fear of retirement for baby boomers is affording health care (53 percent). Other major concerns are contracting a major illness or having to be in a nursing home. Not having enough money was a fear of 45 percent of respondents, while 35 percent feared outliving their money.
While some of these fears may be unavoidable, financial worries need not be one of them. Retirees have a better shot at ensuring retirement indeed is golden if they plan ahead as well as identify and manage risks. As with any financial decision, investors should consult a qualified financial professional. For more information, visit www.thrivent.com.
Courtesy of ARA Content |
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