Americans with an individual retirement account have significantly more wealth, on average, than those without, writes the Employee Benefit Research Institute. So why aren’t we all saving (even a small amount) if we know it’s a pathway to more wealth? Complexity is one reason.
Retirement planning has become increasingly complex. After each significant drop in the market, we typically see new products designed to protect someone from what just happened. Take annuities for example. (Please note: I am not recommending for or against investing in annuities, only that we can hold these up as an example of how things grow complex.)
Annuities have existed since the Roman Empire. The earliest version was the single premium immediate annuity. You make a single up-front payment, and the annuity starts paying you an income. Since that time, companies have created myriad permutations of fixed annuities, indexed annuities and variable annuities in reaction to market conditions and to cater to a customer’s appetite for risk and reward.
As a result, each wave of new products has made it more difficult for an individual to do their own research about how they will use their assets. What you don’t want is all that complexity causing you to procrastinate with regard to retirement planning. Retiring in the future without enough money to sustain your lifestyle could lead you to a “part-time retirement.”
In addition to always being focused on what you hope to accomplish with your planning (i.e., safety, income generation, etc.), here are a few tips. First, steer clear of investment products that you do not fundamentally understand. You likely wouldn’t make an important decision at work based on a “hot tip” or a single news article. Why do it with your hard-earned money? Second, if you choose an advisor, find one whose job is to understand what he or she recommends, instead of someone who has the pressure of selling products to earn a commission. Third, diversify asset classes. It’s unwise to tie up all you have in, say, stocks alone.
Einstein said, “Everything should be made simple as possible, but not simpler.” When planning for retirement, spend at least as much time dissecting the financial products on the market as you would the pros and cons of buying a car or home. Your part-time investment in planning can lead you to a full-time retirement lifestyle.
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