If retirement investment decisions were straightforward and the same for everyone, a simple Google search might be able to tell you what you should do. However, like all investors, you are a person with unique goals, a unique situation, and individual strengths and challenges in making investment choices. That makes investing more complicated, but knowing a few ways that these important decisions could impact your life, now and after retirement, could help.
Starting early is a good idea for most people, but it’s especially important if you have what is known as a “Happiness MoneyMind®.” As opposed to savers with a “Protection MoneyMind®,” you really would rather spend your money than conserve it. Getting an early start on retirement savings can be especially beneficial for you because it enables you to put less aside each month to reach your retirement goals.
With the benefits of compounding interest and returns, achieving a million-dollar retirement nest egg could cost you only a quarter of the monthly savings starting at age 20($361) as it could cost you if you don’t begin until age 40 ($1,436).
Whenever you start your retirement preparations, determining how much to save is more important than any other investment decision. In fact, in the early years, the returns you earn, good or bad, won’t make a major difference. This is because your contributions could be a significantly larger part of your savings growth than your returns. For example, an 8% return on $10,000 will earn you only $800 in a year—not enough to significantly impact your retirement lifestyle.
As your retirement nest egg grows, however, investment decisions become more important. An 8% annual return on $500,000 is $40,000. If you can make 10% on your money instead, you have $50,000—just that 2% increase would earn you as much as you once had in your entire account.
The more money you have, the more money you could earn, but also the more you can afford to lose. If you don’t make the extra 2%, you will theoretically have lost $10,000. But you may not mind nearly as much as you would have when that was all you had. And when you’re investing long-term for a goal such as retirement, you have more time to recover from market fluctuations.
Although the specifics of your retirement goals will be unique to you, each person tends to put more weight on one of these overall intentions:
If you are conscious of your primary intention as you make retirement investment decisions, you are more likely to be satisfied with the results. Do you want to leave a significant legacy to your children or charity? Are you focused on having plenty of money for travel, entertainment, adventures and fine things? Do you want to ensure you don’t run out of money before you die and become a burden on your children?
All three would be nice, but one of them is likely the most important to you and should drive most of your investment strategies. Will you use trusts, life insurance, annuities? What should the balance of risk vs. security look like in your overall portfolio? At what point in the market cycle will you want to increase or decrease your equity or cash positions?
Once you’ve decided when to start saving for retirement and how much to save, your investment strategies may have a significant impact, especially in the years leading up to retirement. At United Capital, a Goldman Sachs Company, our private wealth management advisors know that investment planning is not just about money—it’s about your entire life. The first step of our 3-step process is to help you clearly articulate your intentions, goals, preferences, and priorities.
United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.
The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.
Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.
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