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When planning the future, people are often taken in short -term news rather than focusing on long -term strategy, even if retirement planning can extend over the decades.
And it is only one of the many errors that those who save or live in retirement are, according to Nick Nefouse, a global official of retirement solutions and responsible for Lifepath in Blackrock.
“If I think of retirement planning, it’s almost always a long horizon,” said Nefusian in a recent episode of the decoding retirement (see the video above or listen to below). “And what we do is that we are flooded short -term news. And if you are thinking of short -term news compared to retirement planning, these are two very different things.”
Consider that a person in their twenties will spend about 45 years to save for retirement. Then, reaching 65 years, they can expect to live for another 20 to 30 years on average. Combined, this represents a significant time for financial planning. Even someone who is 55 years old has about a decade before retiring.
“The reason for Time Horizon is so important is more than you are in the markets, the better is the probability that you will succeed,” he said. “But if we have this short view on the horizon of what will happen next year or next quarter, it tends not to increase very well for long -term investment.”
Nefouse also suggested that individuals often make mistakes about risk. “We tend to think of myopic risk as market risk,” he said.
Instead, the risk should be considered as a concept of life cycle, encompassing market risk, risk of inflation, risk of longevity, risk of human capital (loss of employment) and the risk of sequencing (bad market yields). In addition, individuals must consider that the risk is evolving during their lifetime.
At BlackRock, a model they marry is something that is called GPS – grow, protect, spend.
“When you are young, it is simply a question of maximizing growth,” he said. “And this is where you want to have the highest actions pending in your wallets. Really tips over growing actions. It was in the twenties, the 1930s, even in their forties. From the mid -1940s until you are retired, we really want to start adding protection more protection.
Find out more: Retirement planning: a step by step guide
When you retire with a lump sum at 62, 65 or 67, there are few advice on how to systematically write the assets, and many even avoid thinking about “decimulation,” said Nefouse. Consequently, retirees tend to settle on the balance of their account, reluctant to spend it. They will use capital gains and income but will resist diving into the principal itself.
“This is another big false idea,” said Nefouse. “Many people do not want to spend retired capital.”
To be fair, the fear of spending capital is partly due to uncertainty about longevity.
“When you look at behavioral research, it is not illogical that people do not want to spend their director,” said Nefouse.
However, the aim of savings is to spend money retired so that you can live as you spent during your work years. “You have to spend your director,” he said.
(Jeff Chevrier / Icon Sportswire via Getty Images) ·Icon Sportswire via Getty Images
To help individuals estimate how much they can retire, Blackrock offers an audience Lifepath expenditure tool On its website, which calculates its expenditure potential according to their age and their savings.
One way to respond to the main false idea and others is to consider small decisions with a major impact.
Using self-registration, qualified fault defects (such as target date funds) and self-escalange features in plans 401 (K) can considerably improve retirement savings, Néfouse said.
Qualified default investments, such as target date funds, provide a structured investment approach. These funds are designed to be more focused on growth when an investor is younger and gradually becomes more conservative when approaching retirement.
“However, he is not seated in cash,” said Nefouse. “You are actually in a growth asset for a much longer period.” This, he said, helps maximize long-term yields while managing the risk appropriately over time.
Many workers face a dizzying range of retirement savings options, health savings accounts (HSAS) with traditional and Roth 401 (K) levels. With so many choices, how do you decide where to contribute – and how much?
“It becomes delicate,” said Nefouse, noting that the decision depends on personal preferences, income level and tax considerations. But the most important step? “Start saving somewhere.”
When choosing a traditional Roth 401 (K) and 401 (K), this comes back to taxes.
“We can debate [over] The Roth, which … increases in tax franchise and comes out in tax franchise, compared to the traditional, which leaves your earnings before tax, then increases in tax franchise, then you are taxed, “he said. But the right choice depends on factors such as” current income and expected future tax rates “.
An option to consider is an HSA. “I would tell people not to ignore the HSA,” said Nefouse.
Find out more: 4 ways to save retirement taxes
What makes HSA so powerful is their tax advantage to triple: contributions are before taxes, money increases in tax franchise and provided that it is used for qualified medical costs, it can be removed in tax franchise – even retired.
“If you can bear not to spend your HSA, it’s a triple freelance,” he said.
A particularly intelligent strategy is to “prioritize the accounts that offer employers matches,” added Nefouse. “What I tell people to do is hit the 401 (K), the traditional 401 (K), because it tends to be where the match arrives.”
The same goes for HSA if an employer contributes. “If your business will give you money to be involved, enter them.”
Then, once these bases are covered, where to save then becomes a “higher class problem”, he said, which means a good problem to have when you build wealth.
Nefouse also discussed how the traditional idea of retirement as a time – one day you work, the next day you are not – changes.
Many people opt for “partial pensions” or “wrapped careers” rather than stopping work completely. They could reduce their hours, move on to a different role or even explore a new industry.
“We call this phase as the retirement window,” said Nefouse.
Unlike airline pilots, which are generally retired from their 65th anniversary, most Americans do not follow a strict retirement date. Instead, between 55 and 70 years old, they gradually arise from full-time work, he said.
While many people say they want to work longer, the reality is different and many people do not work after 65 years.
Health problems – whether clean or a spouse – can force an earlier outing. Job loss at the end of the 1950s or early 1960s is another risk, because “it is very difficult to be re -employed at the same rates,” said Nefouse.
So what are the usable advice? “Start planning early,” said Nefouse. This means building several sources of income, understanding social security and taking into account retirement income guarantees.
Social security plays a crucial role in this transition. “The longer you pay yourself, the more the social security service will be of money,” he said.
While the advantages start at 62, the expectation of 70 leads to much greater payments. “Consider it as a mobile scale – you get the least money from the government at the age of 62, and the most at 70,” said Nefouse.
Every Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan your future on Retirement decoding. You can find more episodes on our video center or look at your Favorite streaming service.
