Many Australians, through no fault of their own, simply cannot save for retirement. The financial strains and limited opportunities for some people really make saving money for the future almost impossible as each day is a financial struggle.
However, for those that can save for retirement, financial misconceptions often create additional hurdles to jump over on the way to a financially secure future. So let’s take a look at two common retirement planning misconceptions.
Misconception # 1 – Keep Buying More Bonds As You Age
Asset allocation decisions are incredibly important for both wealth generation and wealth preservation. The out-of-date rule of thumb used to say that you should take the number 100 and subtract your age in order to determine the correct stock to bond investment allocation in your portfolio. This is often referred to as your “glide path.” This rule of thumb glide path approach would have the individual investor buying more and more bonds over time while reducing his or her exposure to stocks. However, the reality is that the decision is not that simple, especially in retirement. In reality, your asset allocation really depends upon your goals, risk tolerance, and risk capacity. The general notion of getting more and more conservative over time with your investments is an outdated and incorrect notion.
It is important to understand that there is a tremendous variety of annuities on the market and not all of them will be suitable or right for every situation. Immediate annuities start making payments today, deferred annuities start making payments in the future, variabannuities can provide some market upside with some downside protections, and some annuities make set payments for a set number of years. When looking at your retirement income plan, keep an open mind about the use of annuities as they can be the best thing for your situation if used properly.
Retirement income planning can be like trying to hit a moving target in the wind. While it is not always clear where you should aim and how to achieve to your financial goals, by keeping an open mind, asking the right questions, getting the right advisor, and securing a comprehensive plan you can see real meaningful improvements in your retirement security. Do not be misled by common misconceptions or be unwilling to reexamine your previous positions. This is where a well-qualified advisor can add a lot of value. If you can afford a comprehensive financial advisor consider hiring one. And if you decide to go that route, do more than just ask if they are a fiduciary – ask about their experience, their conflicts of interest, their education and credentials, their fees and compensation model, and ask for referrals for a reputable financial planner in your area.