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When planning for the future, people often get caught in short -term news rather than focus on the long -term strategy, although retirement planning can extend over decades.
And this is just one of the few mistakes that save or live in retirement, according to Nick Nefius, a global leader of pension decisions and the leader of LifePath at Blackrock.
“If I think about retirement planning, it’s almost always a long horizon,” Nephius says in a recent episode of retirement decoding (see the video above or listen below). “And what we do is pour in short -term news. And if you think about short -term news against retirement planning, they are two very different things.”
Think that a person of their 20s will spend about 45 years saving retirement. Then, once they reach 65, they can expect an average of 20 to 30 years. In combination, this is a significant timeframe for financial planning. Even someone who is 55 years old still has about a decade before retiring.
“The reason why Time Horizon is so important is longer that you are in the markets, the better the likelihood of success,” he said. “But if we have this short view on the horizon for what will happen next year or the next quarter, it is not very good for long -term investment.”
Nefouse also suggested people often make risk mistakes. “We tend to think about risky myopia only as a market risk,” he said.
Instead, the risk should be seen as a concept of the life cycle, which covers market risk, the risk of inflation, the risk of longevity, the risk of human capital (job loss) and the risk of sequencing (poor market return). Moreover, people need to think that the risk is developing throughout their lives.
In the Blackrock model they support you is something called GPS – grows, protects, spends.
“When you are young, it’s just about maximum growth,” he said. “And here you want to wait for the biggest capital in your portfolios. Really lean on growth.
Read more: Pension Planning: Step by Step Guide
When you retire with a one -time amount of 62, 65 or 67, there are few guidance on how to systematically withdraw assets and many avoid even thinking of “decumulation,” Nephius said. As a result, pensioners tend to fix on the balance on their account, not tending to spend it. They will use capital profits and income, but oppose the immersion in the director himself.
“This is another big misconception,” Nfa said. “Many people do not want to spend the director in a pension.”
To be fair, the fear of spending the principal is partly due to the uncertainty about longevity.
“When you look at behavioral research, it is not illogical that people do not want to spend their director,” Nephius said.
However, the point of saving is to spend money in a pension so you can live as you have spent during your work years. “You have to spend your director,” he said.
(Jeff Chevrier/Icon Sportswire via Getty Images) ·Icon Sportswire through Getty Images
To help people judge how much they can spend on a pension, Blackrock offers a publicly available tool for spending LifePath on its website, which calculates the cost potential based on their age and savings.
One way to deal with the main misconception and others is to take into account small solutions with great impact.
The use of automatic recording, qualified defaults (such as target date funds) and automatic escalation functions in plans 401 (k) can significantly improve retirement savings, NEFUSE said.
Qualified default investments, such as target funds, provide a structured investment approach. These funds are designed to be more environmentally friendly when the investor is younger and gradually becomes more conservative as retirement is approaching.
“However, the important thing is that it is not sitting in cash,” Nfa said. “You are actually in a growth asset for a much longer period of time.” This, he said, helps to increase long -term returns while managing the risk appropriately over time.
Many workers are facing a dizzying array of retirement savings opportunities, from HSA savings accounts to traditional and Roth 401 (K) plans. With so many choices, how do you decide where to contribute – and how much?
“This is complicated,” Nephius said, noting that the decision depends on personal preferences, income level and tax considerations. But the most important step? “Just start saving somewhere.”
When choosing between Roth 401 (K) and the traditional 401 (k), it comes down to taxes.
“We can discuss [over] Roth, which … grows without taxes and goes out without taxes, compared to the traditional, which comes out of your revenue before tax, then grow without taxes and then you are taxed, “he said. But the right choice depends on factors such as” current income and expected future tax rates. “
One of the options to bear in mind is HSA. “I would tell people not to ignore HSA,” Nephius said.
Read more: 4 Ways to save taxes on retirement
What makes HSA so powerful is their triple tax advantage: the contributions are before taxation, the money is increasing without taxes and provided that they are used for qualified medical expenses, it can be withdrawn without retirement tax.
“If you can keep not spending from your HSA, it’s triple without taxes,” he said.
A particularly intelligent strategy is “to prioritize accounts that offer employer matches,” NEFUSE added. “What I tell people to do is hit 401 (k), traditional 401 (k), because this is where the match comes.”
The same applies to HSA if an employer contributes. “If your company will give you money for participating in them, enter them.”
Then, after these bases are covered, where to save then becomes a “higher-end problem,” he said, which means a good problem that you need to have while building wealth.
Nefouse also discussed how the traditional idea of retirement as a moment – one day you work, the next day you are not – change.
Many people choose “partial pensions” or “bis career”, not completely stop work. They can reduce their hours, go into a different role, or even explore a whole new industry.
“We call this phase as a retirement window,” Nfa said.
Unlike airline pilots, who usually retire on their 65th birthday, most Americans do not follow a strict retirement date. Instead, between the ages of 55 and 70, they gradually move from full -time work, he said.
While many people say they want to work longer, reality is different and many people do not work 65 years.
Health problems – whether they are their own or spouse – can force a more outcome. Job loss at the end of the 50th or early 60s is another risk, as “it is very difficult to adjust with the same percentages,” Nephius said.
So, what is the action advice? “Start planning early,” Nephius said. This means building multiple sources of income, understanding social security and consideration of retirement guarantees.
Social security plays a decisive role in this transition. “The longer you delay, the more money you will give you the social security department,” he said.
While benefits start from 62, waiting to 70 leads to significantly higher payments. “Think about it as a sliding scale -you get the least money from the government at 62 and the largest at 70,” Nephius said.
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