your money

Nest Egg Planning: You’ve Got to Be in It to Win It

David Conover | March 1, 2017 3 MIN READ

Back by popular demand. It’s been about a year since this article first ran. Due to its tremendous success, we’ve brought it back so our newer Insights readers wouldn’t miss out.

Do you play the lottery? I do from time to time, especially when the jackpot is up there. It’s a lot of fun to dream “what if” and what I’d do with the money if I won. Yet, it’s nothing more than a dream. As we both know, the odds are never going to work in our favor. But nothing ventured, nothing gained. Or as they like to say in the lottery world, “You’ve got to be in it to win it.”

The same holds true about creating a rock-solid strategy for accumulating a retirement nest egg. Plus, it’s a much more reasonable “it” you should be focused upon winning.

“Are you 100% sure that the steps you are taking will provide you a secure retirement, on your terms?” This is a question you’ll often hear from advisors and financial planners. They’ll also ask about other goals such as paying for college, a second home, travel and maybe even a boat. While many of these are great goals to have and work toward, not all measure up to being a necessity. Retirement is a different animal altogether, as you’ll need to have investments and income in place to help support the lifestyle you’ve worked so hard to create.

Easier said than done, right? Saving and investing is about discipline, sacrifice and managing risk. Early Baby Boomers and older would typically be more risk averse with their savings. After all, it wasn’t until the mid 1970s that IRAs and 401(k)s were introduced. Until then, people relied on company pensions and Social Security to fund their retirements. But these defined benefit plans are now few and far between, and defined contribution plans such as 401(k)s rule the day. Now, it’s up to us to grow our own retirement accounts.

For now, I’m going to assume that you’re maxing out your 401(k) and IRA contributions. And, if not, that you’ll at least begin to give it some serious consideration. There are plenty of online calculators that can give you a target amount for your retirement nest egg. They’ll account for a number of factors, including age, savings rate, years until retirement and rate of return. The most important of these variables is the last. This is where risk tolerance and the capacity to assume risk come in to play.

Money market rates alone probably won’t do. You will likely need exposure to stocks, bonds, funds and other assets—of which the returns are not guaranteed and thus subject to risk of loss. “So how to choose the right investments for me?” Fear not. Risk can be reasonably measured and managed. While past performance is not a guarantee of future results, there are analysts and analytics that can quantify a particular investment’s risk. More importantly, they can quantify the risk of a group of investments, which will typically be less than the risk of a single investment. This is the value of diversification at work.

Like many, maybe you’re uncertain as to your risk tolerance or capacity to assume risk. Again, there are tools and questionnaires available online, through an advisor or financial planner, or perhaps through your company 401(k) plan that can give you an idea of how much risk you might want—or need—to take. Ultimately, it’s about matching your risk capacity with the risk characteristics of your investments that leads to successful results. And better sleep.

Here are a few suggestions I’d offer to anyone looking to strategize toward the nest egg of their dreams.

  • Continue or start saving as much as you can.
  • Know your capacity for risk and the risk of your investments.
  • Diversify your investments.
  • Periodically assess your investments. Are they behaving as predicted?
  • Watch your investment expenses. Unreasonably high investment expenses and fees can erode your returns.
  • Get help if you need it. There’s plenty of advice online, or with a good advisor or financial planner.

We all lead busy lives whether at work, home or both, so it’s easy to put off retirement planning for another day. Just don’t put it off too long. You work hard to achieve your current lifestyle. That’s why it’s imperative to start planning now so that it may persist or even improve into your golden years.

David Conover
David Conover
President, EverBank Wealth Management, Inc.
David Conover
David Conover
President, EverBank Wealth Management, Inc.

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