retirement investing

I know not what the rest of the world feel about retirement, may be pulling up the covers over our head and giving up on life rather ?depressing? and ?depressing? but being an optimist I feel that retirement years are the golden years and you can live like a king if you can rule your retirement. Whether you\'re already retired, will soon retire, or are a decade away from that happy day, your first step would be to ensure that your retirement will be a secure one.

 

In order to rule your retirement years firstly you should know to determine how much you\'ll need to save for retirement. You should also know how to save and invest to reach that amount. Know how to allocate your assets for growth and maximum stable cash flow and at the same time should know how to protect these assets from inflation, taxation, and market risk.

 

The traditional answer to the question that where would I invest my retirement money is either invest in utilities, preferred stock, bonds and other dividend producing interest paying securities. You would definitely take the interest and dividends as income of the year and let your principal ride. The focus generally was on income and little attention was, however, paid to increase the value of the underlying investments. According to many retirement investors the risk was to be avoided at all costs.
But the present scenario has changed a lot. These days fewer companies pay significant dividends, the utilities have been deregulated, interest rates have become lower, and bond markets have become unpredictable and volatile and above all life expectancy of an individual has increased. In this kind of situation investment strategy may not serve retirees too well.  The retirees may even run out of money earlier than they expected.

 

Today millions of people all around the globe are relying on self directed investment accounts such as IRAs and 401k plans to provide future retirement income. Many of these people do not have proper knowledge about to invest the money accumulating in these accounts so what they are doing is, seeking the guidance of experts.  Various investment firms, financial planners and government agencies advise these people to hold their retirement funds in diversified portfolios with a larger portion to be invested in stocks.

 

The ultimate goal of a retirement plan is to maintain one?s standard of living in retirement.

Many financial planners have estimated that you need about 70 percent of your household income to maintain your standard of living. This is particularly the amount we use as our default desired income goal. In earlier years there were no fixed income securities offering long term protection against the risk of inflation. However, it has been observed that the situation has changed in recent years. Economists have long urged their governments to issue inflation-indexed bonds to provide a long term inflation hedge for households saving for retirement. But until 1980?s no government of a industrialized country took up the initiative to do so. Finally in 1981 the government of U.K started issuing inflation-indexed bonds. This bond very well stated the goal of providing a means for pension funds to hedge retirement benefits that were indexed to the cost of living. This was soon followed by the government of Canada and later on by the U.S Treasury. The inflation-indexed bonds issued by the U.S Treasury states that suppose a single man is 55 years of age and plan to retire at 65. By investing in inflation protected bonds of appropriate maturities, he can fully immunize a stream of real retirement income starting at age 65 and ending at 85 years.

 

If a minimum level of real retirement income for life can be guaranteed, people would be able to buy inflation protected life annuities. In many countries social security retirement benefits takes the form of inflation-protected life annuities, but a social security benefit may short fall of a person?s minimum desired level of real retirement income. This gap can be filled by the private annuity companies using inflation protected bonds to immunize their liabilities.

 

Another major threat to someone?s standard of living in retirement is his failing health and   may be some kind of disability in the late years. The expensive new medical procedures and techniques of modern days have prolonged the lives of senior citizens suffering from illness. These modern and improved medical techniques have increased the cost of living in the retirement years. Investing in an apartment in an assisted living facility usually after retirement has become an attractive alternative for an increasing number of elderly people.

 

The financial advisors should always take into account the individual?s willingness   to postpone retirement in suggesting an optimal asset allocation. The more the willingness to work beyond the expected retirement age the greater will be the proportion to invest in stocks.

 

The sponsors of the self directed investment plans can enhance the risk reward opportunities available to investors by offering the investors options like securities or contracts as an additional asset class. These assets can also provide means of participation in stock market gains while protecting one?s minimum standard of living as well.

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