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3 Risks that Could Derail Your Retirement Plan

Avoid these potential catastrophic events at all cost

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Funding your retirement is a big financial obligation that no one can escape. How big? While other expenses like paying for college education or a home are also large, they aren’t necessarily in the same league. Why? Because buying a home or paying for a family member’s education isn’t something we necessarily have to do. On the other hand, all of us at some point in the future will stop working and retire.

And those of us that have saved an adequate sum of money will be in good shape whereas those who haven’t won’t.

While it may come as bad news to some, even those who have been diligent savers throughout the years, carefully investing their money, they could face catastrophic situations that derail their ability to live a comfortable retirement.

Let’s examine a few of them.

Having the Wrong Asset Mix

Getting the wrong investment or asset mix inside your IRA, 401(k), 403(b), 457, or other retirement plan is a common mistake. How does this happen?

Although many retirement plans use target-date retirement funds as a default choice, many of these generic products are far too aggressive in their equity exposure as people reach their retirement target date.

For example, the Vanguard Target Retirement 2020 Fund (VTWNX) has almost 58% of its exposure to stocks. While it’s true people retiring in the year 2020 may live another 20 to 30 years, a stock market decline of 20% or more would inflict serious damage.

Market declines of this magnitude (20% or more) have occurred in the past and they will occur again in the future. And investors who have been lulled into complacency by rising stock prices along with excessive exposure to stocks will pay dearly.

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At the opposite spectrum of people who overdose on risk taking, are the people who invest too conservatively. Because of the lower returns associated with conservative investments like short-term bonds (SHY) and cash, people who park too much of their money in these type of low reward assets face the dire prospect of having the buying power of their investment savings consumed by inflation (TIPS).

Whether a person is too conservative or too aggressive, having the wrong asset or investment mix has the same counterproductive results of undermining a person’s retirement plan.

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Article printed from InvestorPlace Media, http://investorplace.com/2016/10/3-risks-that-could-derail-your-retirement-plan/.

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