16 Oct Advice For Investors Worried About Retirement Savings
By Nanci Hellmich, USAToday.com
Many jittery investors are worried about their retirement savings given the recent volatility of the stock market. The Dow was down 273 points Tuesday, up 275 Wednesday and down 335 points Thursday.
“The market will have its ups and downs, but it’s important to stay the course,” says John Sweeney, Fidelity Investments’ executive vice president of retirement and investing strategies.
“While October gets a bad rap for having the most market declines, it’s important to look at the story the long term picture tells,” Sweeney says. “If you look at the S&P over a 20-year period, October had the second highest median return of any month — 1.76%.”
If you are five to 10 years from retirement, that’s a long period of time over which your portfolio can grow so you should be thinking about an equity portfolio that will outpace inflation, he says.
“Equities are higher risk but have higher expected returns over the long term and enable investors to earn returns that exceed inflation,” Sweeney says. Your other choices are cash, money markets, bonds. In today’s environment, bonds are not allowing your portfolio to grow at a rate that exceeds inflation, he says.
If you have a sum of money and are worried about investing it all today, take portions of it and invest it over a period of time so you are getting an average rate, buying more shares when they are less expensive and fewer shares when prices rise. You could invest it each month for the next six months or invest one quarter of it every month for four months, he says.
Exactly how much money you’ll need for retirement is complicated because there are so many variables, including your essential expenses (housing, food health care) and discretionary expenses (travel, clothes, entertainment, dining out). Everybody’s situation is going to be a little different. People often underestimate how long they are going to live. A quarter of us will live into our early 90s, so we are really planning for a retirement that could last 30 years or more.
Fidelity offers this rule of thumb: Save at least eight times your final salary to help increase the odds that you won’t outlive your savings during 30 years in retirement. This amount assumes that you’ll get some money from Social Security and that your expenses after you retire will be lower than when you were working. Higher net-worth folks usually need to save more than eight times their final salary.
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