The world of today is vastly different from the one that existed in, say, 1974. Innovations such as the Internet, smartphones, tablets, Facebook, Twitter and so on have made our lives more enjoyable, efficient and productive in many ways, and have vastly improved our access to the world\u2019s knowledge. Yet when it comes to one important area of our lives \u2014 investing for the future \u2014 many of us may actually face more challenges today than we might have in the past.<\/p>\n
At least two main factors are responsible for this apparent regression. First, following a quarter century during which U.S. workers\u2019 income rose fairly steadily, \u201creal\u201d wages \u2014 that is, wages after inflation is considered \u2014 have been flat or declining since about 1974, according to the Bureau of Labor Statistics. Secondly, during this same time period, we\u2019ve seen a large drop in the percentage of private-sector workers covered under a \u201cdefined benefit\u201d plan \u2014 the traditional pension plan in which retired employees receive a specified monthly benefit, with the amount determined by years of service, earnings history and age.<\/p>\n
So unlike your counterparts in the 1950s and 1960s, you may not be able to count on a rise in real wages, and you may not have the promise of a regular pension. What, then, can you do to improve your prospects for eventually achieving a comfortable retirement?<\/p>\n
First of all, in the absence of a formal pension, you will need to create your own retirement plan. That means you will need to consider all the opportunities available to you. If your employer offers a 401(k) or similar account, such as a 403(b), contribute as much as you can afford \u2014 at the very least, put in enough to earn your employer\u2019s matching contribution, if one is offered. And even if you participate in your employer\u2019s plan, you may also be eligible to open an IRA. If you\u2019re self-employed, you still have options such as a SEP IRA or a \u201csolo 401(k).\u201d While these accounts may differ from each other in terms of eligibility, income restrictions and contribution limits, they both offer the same key benefit: the ability to defer taxes on your earnings for many years, typically until retirement.<\/p>\n
As for your next main challenge \u2014 the need to compensate for stagnant real wages and the subsequent difficulty of boosting your savings \u2014 what can you do? For one thing, you will need a reasonable percentage of your portfolio \u2014 both inside and outside your IRA, 401(k) and other retirement plans \u2014 devoted to growth-oriented investments. It\u2019s true that the value of growth vehicles, such as stocks and stock-based instruments, will always fluctuate. But you can help control this risk by owning a mix of investments, including stocks, bonds, Treasury bills, certificates of deposit (CDs) and other securities. Keep in mind, though, that while diversification can reduce the impact of volatility on your holdings, it can\u2019t guarantee profit or always protect against loss.<\/p>\n
As far as attaining rising wages and enjoying guaranteed retirement payments, we don\u2019t have the \u201ccertainties\u201d that many people had in the 1950s and 1960s. But you can still help brighten your future \u2014 through diligence, discipline and the determination to explore the opportunities available to you.<\/p>\n
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. For more information, contact Greg Burns, 15 Lake St., Owego, N.Y. by calling (607) 687-4427.<\/p>\n","protected":false},"excerpt":{"rendered":"
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