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You are in charge
Retirement planning today is a far cry from the prevailing pattern of the mid-20th century. As this video explains, preserving wealth throughout retirement is increasingly important for investors, as there are fewer income guarantees than earlier generations once had.
Presenter: Sameer Samana, Senior Global Market Strategist, Wells Fargo Investment Institute
[Music plays; image of a cake with “happy retirement” written on the top; cake is part of a retirement party scene.]
Sameer Samana: Many retirees used to be able to depend on a monthly pension and social security benefit for life…income that was guaranteed and predictable.
[Scene changes to show Sameer, with on-screen text: Sameer Samana, Senior Global Market Strategist, Wells Fargo Investment Institute]
But planning for retirement today is much more complex…and likely with fewer guarantees than earlier generations.
[On-screen graphic titled “Shifting trend in benefit plans,” showing decline in employer-provided plans, like pensions, from 1990 to 2018, to 13% in 2018, compared with rise in self-managed plans, like 401(k)s and IRAs, over the same period, to 47% in 2018. Source: U.S. Bureau of Labor Statistics, National Compensation Survey. Percentage of full-time employees in private industry participating in Defined Benefit Plans vs. Defined Contribution Plans.]
The shift away from employer-provided retirement plans, like pensions…to self-managed plans like 401Ks and IRAs, has a lot to do with that.
So does the impact that living longer has on our finances.
It’s no wonder that preserving wealth throughout retirement has become an important topic for many investors.
Man at retirement party: “When I think about retirement, it’s really about the freedom to make my own choices, stability, and no hidden surprises. That’s really what I’m looking for.”
Woman at retirement party: “You know, it’s really tough between my two kids in college and my parents with their medical expenses, it’s just really hard to put money away right now.”
Woman #2 at retirement party: “It’s so crazy I have to think about retirement right now considering how young I am. But it’s only 30-40 years down the road. And I feel like I need to start somewhere.”
[On-screen graphic titled “Biggest increases in costs 1998-2018.” Items listed: Hospital services, 225%. College tuition, 185%. Child care, 162%. Medical services, 106%. Source: Bureau of Labor Statistics.]
Sameer: Research shows that whether your retirement is still years down the road…or just around the corner…chances are it may last longer and cost more than at any other time in history.
This will undoubtedly change the traditional retirement picture for many investors in the workforce today.
So how do you know what the right retirement strategy is for you?
Well, it depends on what stage of life you’re in.
[On-screen graphic titled “A generational approach.” Shows a path to retirement with information about generations. Millennials, born 1981-1997. Generation X, born 1965-1980. Baby Boomers, born 1946-1964.]
If you’re a Millennial, you’re still accumulating assets. Time and the potential power of compounding is on your side, so start saving early and take advantage of tax-advantaged retirement accounts.
If you’re a Gen Xer, you’re likely in your peak earning years. So think about increasing your savings contribution and paying down household debt.
And, if you’re a Baby Boomer, you’re close to, or in retirement. So, now is the time to consider reducing risk and creating a tax efficient plan for generating income that will help your money last for the rest of your life.
Man at retirement party: “Some of the best advice I’ve ever gotten was to contribute to my 401k—it was really an easy way to start saving money—and that’s really paid off now.”
Man #2 at retirement party: “You know when I was younger I wasn’t able to save that much. But now that we’re making more, we’re saving more, and I think we’re going to be OK.”
Sameer: Developing an investment plan is the key to being prepared for your retirement.
And we believe the best way to begin is by having a planning mindset…and taking action.
Remember…you’re in charge of planning for your retirement.
So guys, what are you going to do now?
Man celebrating retirement: “We’re going to do some traveling, see some places we’ve never seen, and spend more time with the grandkids.”
Sameer: “Sounds good.”
[On-screen text: To learn more, download our special report. Cover of report shown.]
To learn more about how retirement investing strategies can work for you, download our Wells Fargo Investment Institute special report: Reimagining Retirement: Generational Strategies for 21st Century Challenges.
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The shift from direct-benefit plans, such as pensions, to direct-contribution plans, such as 401(k)s, means that individuals have a much greater responsibility for their retirement. You can see the shift across generations.
Source: 2018 Wells Fargo Retirement Study, October 15, 2018.
Reimagining retirement for every generation
Each of the generations in the workforce today—Baby Boomers, Generation X, and Millennials—faces unique challenges. But each is also in a unique position to take control of retirement.
of Baby Boomers in an employer-sponsored retirement plan are invested in a diversified portfolio.
Baby Boomers: Revisit your asset allocation
As they approach retirement, investors have tended to emphasize fixed income for reduced volatility and income generation. Due to low interest rates and longer work lives, however, strategists advise that Baby Boomers may want to maintain a higher allocation to equities during their retirement years, depending on their risk tolerance.
Source: Wells Fargo Institutional Investment and Trust, 2018 Driving Plan Health, October 2018
of Gen Xers have a detailed financial plan.
Gen Xers: Invest for growth
In our opinion, portfolio allocations for this generation should favor equities for growth but still be diversified to smooth out downturns. Within the equity allocation, consider diversifying across domestic and international stocks.
Source: 2018 Wells Fargo Millennial Survey, October 15, 2018
of Millennials do not believe the stock market is a good place to grow their retirement savings.
Millennials: Make investing a priority
Limited experience and an aversion to risk can make millennials hesitant to start investing. However, starting an investing plan as early as possible can have a significant effect on your savings. Assuming your investments earn a hypothetical 6% return yearly, over time the power of compounding could have a significant effect on your savings.
Source: Wells Fargo/Gallup Investor and Retirement Optimism Index, November 2018
Your mindset could be the key to retirement-planning success
The 2018 Wells Fargo Retirement Study identified the factors most associated with financial well-being. This is the Planning Mindset—a state of mind that leads to behaviors that can help create retirement-planning success.
Key statements that define the Planning Mindset
I am able to work diligently toward a long-term goal
I prefer saving for retirement now, to ensure I have a better life in retirement
It makes me feel better to have my finances planned out for the next one to two years
In the last six months, I have set and achieved a goal or set of goals to support my financial life
Download the full report for more
Reimagining Retirement includes more information to help investors succeed in their retirement planning.
Wells Fargo Investment Institute is home to more than 140 investment professionals focused on investment strategy, asset allocation, portfolio management, and alternative investments. Its mission is to deliver timely, actionable advice that can help investors achieve their financial goals.
For additional insights and market commentary, visit our website. For assistance with your investment planning or to discuss the points in this report, please talk to your investment professional.