Retirement Plan Pitfalls
Today's workers can no longer get support for their retirement funds from the
conventional three-legged stool of retirement finances, as Social Security faces instability due to underfunding, employer-based retirement funds are becoming unreliable, and the average worker's personal savings are barely enough to make ends meet. To overcome these obstacles to a stable nest egg, employees who are nearing retirement need to resolve the issues within the retirement system itself, and work within the limits of existing solutions or identify additional resources.
Barriers that exist within the system require the near-retiree to undertake in-depth research and know how the system works. For example, conventional plans that provide defined benefits are gradually being phased out by the emergence of the self-directed retirement plan, which requires employees to commit with time, diligence, and a certain degree of investment training. As for employers, the elimination or minimization of costly supplemental features are encouraged, in addition to reducing fiduciary liabilities that may stem from them influencing or advising their workers as to what vehicles or tools to invest in. This arrangement provides protection for retirement plan sponsors and profits for plan providers, although it often leaves participants behind, and without access to resources and important plan information.
Additional resources such as TDFs, or Target-Date Funds, are becoming the default choice of investment for employees who want to automate the management of their portfolios. These shift a person's investments to bonds from stocks, working with the premise of less risk over time as the investor nears retirement. Also called the "glide path," this investment strategy is criticized due to its approach. TDFs can be likened to a one-size-fits-all investment solution that logically won't work for every investor, as it doesn't consider all relevant information when identifying the allocations of an investment portfolio.
A worker can find investment support outside the conventional retirement system by hiring a financial adviser to work on a self-directed retirement plan. A financial advisor can fine-tune your investment strategy by taking information such as financial needs and goals into account, and using this data to develop and manage a financial plan built around the right investments.
by: Carina Smith
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