When most people think about retirement, they see it as a time when they will be able to do all the things they’ve always wanted to do. However, if you aren’t actively investing for retirement during your working years, you may not be able to live the kind of lifestyle you want when that time finally comes.
You will need to make many investment decisions affecting the quality of your retirement. Some will be easy, and some will be hard, which might tempt you to put them off until it may be too late. But by educating yourself and partnering with financial professionals, you can be confident in the choices you make, both before and throughout your retirement.
At Fisher Investments, we believe a personalized recommendation helps define your specific path to retirement and our top-down approach to investment management is designed to help you meet your long-term goals. The process starts by identifying your retirement goals—not just what you want to do when you retire, but what you want to achieve with your retirement savings. In our view, most retirement goals generally fall into one or more of the following categories:
But defining your retirement goals and objectives is only the first step. Next you will need to create an effective investment plan—one that has the highest likelihood of achieving success. This involves calculating how much your retirement might cost based upon four factors we discuss in our Definitive Guide to Retirement Income.
Non-discretionary spending. These are fixed costs that you don’t have much control over and usually can’t avoid. We break them down into four sub-categories.
Discretionary spending. These costs are based upon choices you make, depending on your personal situation. Below, we have listed four of the most common discretionary items.
Inflation. Inflation is characterized by a general increase in prices and a drop in the purchasing power of money. This can erode your real savings and investment returns over time, impacting your retirement finances significantly. Assuming a historical inflation rate of 3%,1 the cost of your annual living expenses would increase by roughly 80% in 20 years and 140% in 30 years.
Time horizon. Many investors have difficulty accurately assessing their investment time horizon, which is one of the most important factors in preparing for retirement. For many retirees, life expectancy is a significant factor in their investment time horizon. Today’s 65-year-old can generally expect to live another 20 years on average, and with ongoing medical advances, that number is likely to increase in the future. With people living longer than expected, your life expectancy—or that of a younger spouse—can be a major determining factor in your total retirement cost.
Once you estimate your retirement costs, you will need to set up a plan to pay for them. That money can come from non-investment income like Social Security, a pension, business and real estate interest, or salary if you need or plan to work during retirement. However, if that income isn’t enough to cover your retirement costs, you will need cash flow from your investment portfolio to make up the difference.
Fisher Investments takes a different approach toward your investment portfolio than many other advisers. We are (and always have been) a Registered Investment Adviser (RIA), which means we have a fiduciary responsibility to our clients. This is a legal duty to act in our clients’ best interests. We also don’t earn trade commissions, so our only incentive to place trades is to position your portfolio to help you reach your financial goals.
Brokers, on the other hand, may not have a fiduciary duty to their clients, and since they earn sales commissions, may only be looking for an opportunity to sell you a service or product. Even if some brokers are legally bound by the Department of Labor’s fiduciary rule for retirement accounts, they still may not act in your best interest. For example, the fiduciary rule dictates that a broker must act in your best interests in all retirement accounts, but in a standard taxable account, they may not be held to that standard. In those accounts, brokers might suggest products they consider suitable for you but may not be in your best interest.
At Fisher, we provide a client-focused approach that puts your needs first. That is why we help you fully understand your situation before making recommendations. This process allows us to create an investment plan with an appropriate asset allocation, based on your retirement goals and objectives.
Constructing a successful investment portfolio that helps you prepare for retirement isn’t just about mechanics. Every step of the way, Fisher Investments will advise you on how to stay on track to meet your goals, as well as monitor your financial plan to help ensure your investment strategy is adjusted as needed—all with the aim of keeping you on the path to a successful retirement.
With that philosophy in mind, we are glad to provide educational materials on some often misunderstood products listed below:
Preparing for retirement is an ongoing process that can feel daunting at times, but you don’t need to go it alone. Consider putting Fisher Investments on your side. At Fisher, you will benefit from the extensive experience of our Investment Policy Committee and receive proactive service from your Investment Counselor, who will keep you up-to-date on your portfolio and our current market outlook.
We believe Fisher Investments can help build you a more comfortable financial future for your retirement. To request an appointment for a complimentary portfolio evaluation, fill out our form or call us at (800) 568-5082. We look forward to hearing from you.
1Source: Factset, as of 07/12/17. Based on US BLS Consumer Price Index from 1925-2016.