IRA, 401(k), Roth: What clients should consider
A panel of financial and retirement experts tackle the benefits to retirement savers offered by IRAs, 401(k) plans, and Roths, in this article on The Wall Street Journal. One expert focused specifically on the advantages of lower-cost index funds. But taking his analysis a step further than just the idea of lowering expenses on a one-time basis, he noted how index funds' can have an impact on clients' behavior that has longer-lasting effects. He says that investors who buy actively managed funds not only pay a higher fee at the time of purchase, but since they are more likely to feel that the market can be timed, they are more inclined to buy and sell and, subsequently, rack up more of those fees that were higher to begin with. Indeed, he cites statistics from Morningstar that suggest the average investor in pricey funds lost nearly 3% per year due to poor timing. He then contrasts that to the sales pitch of an index fund, which is simply to match the market's success. Once an investor has made that behavioral and emotional leap, the desire to game the system by picking tops and bottoms wanes a bit.
Another expert on the panel said that contributing to Roth accounts may not always be the best option, especially to those who are in higher tax brackets, while an asset manager reminds retirement investors that they may not have the same investing goals as their fund manager. --The Wall Street Journal
4 habits clients should adopt to boost retirement wealth
To succeed in investing for retirement, clients should develop the habit of saving more instead of just relying on their investing abilities, according to this article on Money. Passive investing often results in better returns than choosing a more aggressive approach, while finding ways to reduce investment costs can help enhance overall returns. Retirement investors are advised to resist the urge to take more risks in exchange for bigger return potential. They should also try to avoid being overconfident and stick to their long-term investment strategy. --Money
Ahoy, more folks retiring on a cruise ship
More seniors are taking long vacation trips on cruise ships, and some are finding the per-day costs can actually be less than other, more traditional retirement living options, according to this article on CNBC. The fees charged by some of the big cruise ships include medical care, meals, laundry and internet connection, says a retiree. Indeed, based on a 20-year retirement span, "cruises were comparably priced to assisted living centers and offered a better quality of life, though land-based assisted living can vary greatly by facility, location and needs," according to a study. --CNBC
Retirement planning, step 1: How long will you live?
People are likely to live longer than they expect and should take this possibility into account as they plan for retirement, according to this article on CBS Moneywatch. To address this longevity risk, retirement savers should make the most of their Social Security benefits and find ways to ensure they will not run out of funds in their golden years. They may consider a systematic withdrawal method or an annuity for guaranteed lifetime income. Another option is to work longer to give their investments more time to grow through compounding. --CBS Moneywatch
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