Retirement: It’s a 10-letter word that does a power play on our thoughts, emotions, and fears. But thinking of your future and planning your years after leaving the workforce doesn’t need to give you anxiety.
A disciplined approach and the right strategies can set you on a path toward prosperity — and that’s exactly what we covered in our recent FOMO Free Financial Future digital conference. Here are some key takeaways from our leading group of experts that you can consider as you build out your retirement savings strategy.
The time to save is now.
Lindsey Bell, chief investment strategist at Ally Invest, took a look at the current state of retirement savings in the U.S. and revealed about 50% of households have nothing saved.
But that doesn’t mean it’s too late to start saving. With increased investment technologies like robo-advisors, diversified securities like ETFs, and investment accounts with low minimums, entering the stock market and investing in your retirement is easier and more accessible than ever.
We can’t all work forever.
If you could just continue to work and forgo retirement, would you? While most people may not choose to work indefinitely, many do overestimate how long they’ll be in the workforce, according to Christine Benz, director of personal finance at Morningstar Inc. For example, only 6% of pre-retirees expect to retire in their 50s — when 29% of people actually do.
Working longer is a worthy ambition, but it shouldn’t be the basis of a retirement plan. That’s because many variables (some uncontrollable) may affect your ability to work, like health conditions, ageism, or job loss. It’s important to plan and save for retirement early, so you’ll be equipped to handle a longer retirement, or one with an earlier start if need be.
Look towards the future with thematic investing.
Is retirement a long way away? Look long-term with a thematic investing strategy. By identifying disruptive, macro-level trends, thematic investing’s forward-looking nature lets you focus on growth as these trends materialize over time.
Global X Research Analyst Pedro Palandrani identifies the video games and esports market as a key one to watch. At $150 billion, it’s larger than the box office and music industry together. And this consumer-driven market is growing quickly, with 2020 potentially being a big year for several video game manufacturers like Microsoft and Sony.
Put yourself, and your finances, first.
As a parent, you want to help out and protect your kids at all costs. But sometimes, the cost of putting your kids above all else i can be detrimental to your future. Sarah Newcomb, Morningstar Inc.’s director of behavioral science, explains how saving for your retirement vs. saving for your children’s education is similar to putting on your own oxygen mask first on a plane before assisting another. Why? You can’t help out others without meeting your own needs first.
Newcomb encourages parents to prioritize their finances — a message that isn’t heard as often. Because while you want to set your kids up for a strong financial future, sometimes the best thing you can do is model positive financial behaviors, like funding your retirement.
Don’t take on student debt that could drown you.
Debt from student loans can be a major burden on a budget, but it doesn’t have to be, Newcomb explains. Research has found that paying back student loans become a detrimental burden when monthly payments are greater than 8% of your monthly post-graduation income.
This is a critical factor to consider when thinking about taking out loans for school. But it doesn’t mean you have to give up schooling for fear of loans. Newcomb recommends factoring in your expected post-grad income (starting salary), your loan repayment period (typically 5,10, or 20 years), and your predicted interest rate to see how much student debt you can likely afford to take on.
View your investments from another angle.
You can assess and compare companies (and potential stocks for your portfolio) using a number of financial factors, like profits, dividend growth, and market share. But if you want to dive deeper into a business’s possible long-term value, you may want to view it through a new lens. That’s where environmental, social, and governance (ESG) analysis comes in, according to Sarah Kjellberg, head of iShares Sustainable ETFs at BlackRock.
Two companies may look similar financially. But if you view them through an ESG perspective, you can shine a spotlight on big differences that may matter in the long run. Consider assessing elements like the CEO’s pay (is it fair?), data security (do they have a history of breaches?), and employee satisfaction (are employees pleased with the company?) to get a more expansive view of a security’s risks.
FIRE might be the move for you.
The FIRE Movement (that’s Financially Independent, Retire Early) gets a bad rap because some people assume it requires being stingy with money. Andy Hill, author of the blog Marriage, Kids and Money, sees it differently.
In a discussion with Ally Invest President Lule Demmissie, Hill says participating in the FIRE movement does require you to give a hard look at your expenses and make budget changes here and there, cutting expenses that aren’t necessary. But through this process, FIRE can open your eyes and free up your finances to help you refocus your spending on the things that really matter to you and bring your joy.
Consider options trading as another option.
Want to generate extra income in your retirement account? Investing in high dividend-yielding stocks is one option. But Senior Options Analyst for Ally Invest Brian Overby suggests trading options is another, often overlooked, opportunity. Selling options in a covered call strategy involves less risk than other types of options trading and can help boost your retirement portfolio’s income, which is especially important during retirement. While you do need to get proper approvals to trade options in a retirement account, most brokers, including Ally, will allow you to utilize this strategy in your account.
Don’t get FOMO about your retirement. Start saving today — and try out some of our experts’ strategies — to fund a future you can get excited for.