How to get your retirement goals off the dime
Let’s kick off our discussion with a happy thought: the potential of doubling your money.
It’s all about the Rule of 72: one of the handiest retirement planning tools. You divide 72 by the annual rate of return on an investment. The result may be the number of years it will take for your funds to double.
For example, take a 9% rate of return: 72 ÷ 9 = 8 years
Or, more conservatively, a 2% rate of return: 72 ÷ 2 = 36 years
These are hypothetical examples and they are not representative of any specific investment. Your results may vary.
The Rule of 72 helps underscore the importance of matching the time horizons for your goals with the investments you choose. For long-range goals such as retirement, a customer may want to consider a less conservative investment to allow for market fluctuations. When planning for short-term goals, i.e. an emergency fund or a vacation, you may want to invest more conservatively.
Of course, the marketplace is overflowing with investment options: ETFs, mutual funds, index funds, etc.… The choices can be complex, and thus you may want to consider contacting a Webster Investments Financial Consultant to discuss this information in more detail. But some advice is fundamental and evergreen.
The rule of 72 is a mathematical concept and does not guarantee investment results nor functions as a predictor of how an investment will perform. It is an approximation of the impact of a targeted rate of return. Investments are subject to fluctuating returns and there is no assurance that any investment will double in value.
The most important word in retirement planning: Start.
You don’t need a substantial initial investment to launch a retirement plan. You just need a commitment to invest consistently, month after month, and let compound interest do its work.
For example, if you invest $200 a month into your qualified retirement plan (like your 401K) and it earns a 6% annual rate of return, in 18 years you’ll have more than $76,000.
But even if you have far less to put aside, follow Nike’s advice: Just do it. Put your money to work now. Use dollar cost averaging: investing the same amount, month after month, no matter how the market is behaving. This is the strategy behind 401K contributions: You have the potential to mitigate the impact of short-term volatility. By investing consistently no matter whether the market is high or low, you may lower the average cost per share and reduce the risk of buying when the market spikes.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
Keep calm and carry on.
Many financial advisors agree: Don’t let your emotions interfere with your plans. When the market drops, some investors panic and sell. They bought high, now they’re selling low. That approach may shortchange you in the long run.
Think of those market lows as a sale on opportunity.
Don’t leave free money on the table.
If your job offers a 401K, you may desire to consider contributing the maximum that your company is willing to match. Any less, and you’re simply walking away from free money.
Help is at hand.
Investing today can be complex, especially with the swings of the market. Fortunately, you can potentially benefit from the advice of licensed Webster Investments Financial Consultants, ready to help you at Webster Bank locations. Hearing from a licensed Webster Investments Financial Consultant can help take the emotion out of your decision-making.
A good way to start planning? List those long- and short-term goals. Then ask yourself, “How much risk am I comfortable with?” Choose investments that let you sleep at night. Licensed WIS Financial Consultants guide their recommendations based on how conservative or aggressive you’re willing to be.
A licensed Webster Investments Financial Consultant can show you a wide range of options that can help you make your retirement goals a lot less intimidating—with a real boost in your confidence in the future.
The opinions and views in this blog post are those of the authors, and are not intended to provide specific advice or recommendations for any individual. The Webster symbol is a registered trademark in the U.S. Webster Bank, N.A. Member FDIC. © 2019 All Rights Reserved. Webster Financial Corporation.
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