Bonds At Your Stage of Life
Planning for Retirement
One of the quiet revolutions of the second half of the 20th century was the dramatic increase in the health and life expectancy of retired people. As a result, conventional ideas about retirement have changed. Robust retirees are leading longer, more active, and more expensive lives.
People retiring in the near future will need more financial resources, and these resources will have to last longer. Most financial advisors say you'll need about 70-85% of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living. In many studies of the European impending retirement situation, it is anticipated that pension benefits will not be sufficient alone to maintain a pre-retirement standard of living. However, some general principles of investment for retirement remain unchanged.
Bonds represent money investors have lent to corporations or government entities. Generally, investors receive a fixed amount of interest regularly for the life of the bond. The face amount, or principal, is repaid at the end. This steady cash flow can provide an element of stability to the retirement portfolio.
A good starting point is a survey of your resources. Research suggests that you are more likely to be motivated to save enough for retirement if you write down what you anticipate it might cost for you to live in retirement and for what expenses. If you add these figures up to get an annual budget, you will understand
Below are some questions that can help you determine the plan that might be right for you:
How many years until you retire?
- 10 years or more.
- Less than 10 years but more than five.
- Five years or less.
How many dependents will you have upon retirement?
- Just one.
- More than one.
How dependent will you be on your investments for retirement income?
- They will have to provide 25% or less of my retirement income.
- They will have to provide more than 25% but less than 50% of my retirement income.
- They will have to provide 50% or more of my retirement income.
How willing are you to take risks in order to achieve your investment goals?
- Whatever risk is necessary to achieve goals.
- Some risk.
- As little risk as possible.
How you answer these questions could suggest different investment approaches ranging from a more aggressive strategy (using a greater percentage of equities and high-yield bonds), to a more conservative strategy (using a greater percentage of bonds than equities), or something in between.
These questions are intended only to get you thinking about your possible investment strategy for retirement and is by no means definitive or intended to serve as investment advice. Many other evaluation matrices are available from financial advisers and firms that offer specific investment products. Several are available on the Internet. A search for “retirement asset allocation” will lead you to several sites that offer evaluations.