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Overcoming the Three Major Risks of Retirement Planning
When it comes to retirement planning there are primarily three major risks that people must avoid.
- Saving too little.
The average person will need a nest egg of 1-2 million dollars or the ability to replace 80% of their pre-retirement income to live comfortably in retirement. This will require a person to save about 15% of their after-tax income. View the table in the free Resources section of BaronSeries.com titled “What will it take to Become a Millionaire?” for an estimate of how much a person would likely need to invest a month in order to become a millionaire by the retirement age of 65. For those individuals closer to retirement that are unable to invest large monthly sums or those individuals wishing to retire much earlier, you can leverage The Baron Solution strategies for developing passive income. These strategies will allow you to create an ongoing stream of income from your assets as opposed to your physical labor or having to work for a paycheck.
- Investing poorly.
You can mitigate this risk by increasing your financial intelligence and learning how to analyze the financial condition and prospects of the companies and mutual funds you invest in. It is important to have this knowledge even if you are working with a financial advisor because the knowledge, skill, and attention directed toward your investment portfolio by advisors will vary greatly. Index funds can also be a helpful way to minimize the risk of investing poorly as you are assured of doing at least as well as the market. As we saw in the last two stock market crashes, it is also vital to learn appropriate strategies for diversification and how to protect yourself, and potentially profit from severe downward moves in the market.
- Withdrawing too much.
According to Center for Disease Control, the life expectancy for men ranges between 69-75, and for women between 76-80 years old depending on race, physical condition, and other factors. You can use the calculators and other tools in the free resources section of BaronSeries.com to help you determine how long your savings will last.
With 25-40% of pension plan sponsors either freezing benefits or closing their plans to new hires, rising medical costs, and social security and other programs on the brink of collapse, it is more important than ever that you take an active role in developing your investing knowledge and securing your financial future. It will mean all the difference in your quality of life in retirement.