Tags: Investing | Retirement | Rethink | Rules

Investing for Retirement? Rethink the 'Rules'

By    |   Sunday, 15 Dec 2013 12:04 PM

It may be time to reconsider your retirement strategy because advisers are beginning to take an eraser to traditional wisdom once considered carved in stone, says The Chicago Tribune.

Social Security is no longer universally recognized as the holy grail, the Tribune notes. Traditionally, individuals have been encouraged to maximize benefits by holding their claims until age 70. That advice may still be best in cases where family history suggests a long lifespan or when Social Security is the bulk of one's retirement income.

But for others, it may be more important to have the benefits flowing at a certain point in one's retirement, says the Tribune.

Editor’s Note: Weird Trick Adds $1,000 to Your Social Security Checks

Financial adviser Brian Vosberg explained that claiming benefits early can enhance the enjoyment during the most active golden years.

“It's a matter of quality of life,” Vosberg said. “Just maximizing benefits for its own sake doesn't make sense sometimes,” he told the Tribune.

Professionals are also increasingly skeptical about traditional wisdom regarding risk. Typically, young workers are advised to invest heavily in stocks and tread lightly in bonds. As they age, they're told to reduce equity exposure and increase bond holdings.

This strategy is known as a “glide path,” explained portfolio manager and author, Barbara Friedberg in US News & World Report. The logic is equities are riskier but will provide higher returns over the long haul. Still, it's best to embrace the most risk at younger ages when there is a lot of time to recover any losses.

But some research suggests the premise is flawed. Rob Arnott of Research Affiliates tested the typical glide path against the inverse scenario of holding more bonds when young and switching to more stocks upon retirement. He found the inverse glide path provides the most wealth, Friedberg said.

According to the data, investors who followed the traditional glide path and contributed $1,000 per year during their working years ended up with an average of $124,460 at retirement . But with the inverse glide path the investor’s retirement year wealth was $152,060.

Retirement researchers Michael Kitces and Wade Pfau recently released an industry paper noting the same conclusion. They also advocate starting retirement with a very low percentage of stocks and gradually increasing it with age, says the Tribune.

Portfolio rebalancing is another issue where advisers are starting to push unconventional wisdom. Savers have long been advised to periodically trim back winning investments. But now, experts warn vretirement savers to avoid becoming slaves to the rebalancing calender, says the Tribune.

Citing a Vanguard study reviewing data from 1926 to 2009, Morningstar's director of personal finance, Christine Benz, says trading costs and other factors argue against frequent rebalancing.

For most periods, letting stocks run causes more volatilitybut produces higher returns, Jonathan Stein of advisory firm Betterment told the Tribune.

Editor’s Note: Weird Trick Adds $1,000 to Your Social Security Checks

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It may be time to reconsider your retirement strategy because advisers are beginning to take an eraser to traditional wisdom once considered carved in stone, says The Chicago Tribune.
Investing,Retirement,Rethink,Rules
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2013-04-15
Sunday, 15 Dec 2013 12:04 PM
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