Secure Your Future
Regardless of how much you may enjoy your work today, no one wants to work forever! Planning wisely for retirement should be a key element of everyone’s financial strategy. At LNB, we offer a variety of investment and retirement solutions for everyone from absolute beginners to seasoned investors. Make the most of your hard work today by investing for tomorrow.
To get started (or motivate you to keep going), browse the following information:
Why It's Important to Invest in Your Retirement
Investing for retirement may be the most important financial effort that most of us will undertake. Down the road a few years, people will probably have to rely more on their own finances and less on the government than previous generations. That makes planning for retirement more important than ever.
Why is this so?
People are living longer than ever.
Today, the average 65-year-old man can expect to live for 16 more years, while the average 65-year-old woman can look forward to 19 more years.1 And many people live much longer than average! If you retire at age 65, you could spend 20 or 30 years in retirement.
Social Security won't be enough.
- Today, the average Social Security benefit is only about $12,000 a year — hardly enough for most people to live on.2
- The average age for collecting full benefits is gradually increasing. For those born after 1942, full retirement benefits will not kick in until age 66 or later.
- The laws governing Social Security have changed in the past, and they will likely do so in the future — especially when you consider that payroll taxes collected are projected to provide for just 74 percent of the promised benefits by 2040.
You will likely be expected to pay a larger portion of your health care costs in the future — and they're getting more expensive all the time.
- Some experts believe that a retired couple who live into their 80s may need $300,000 just to pay for health care (not counting everyday living expenses).
- Medicare may help, but it probably won't meet all your health care needs. Because larger numbers of people are approaching or are in retirement, Medicare is predicted to deplete its assets in 2018.3
1 Source: National Center for Health Statistics.
2 Source: Social Security Administration, Monthly Statistical Snapshot, April 2006.
3 Source: Social Security Administration, May 2006.
How you invest your contribution dollars can impact the level of return and risk in your retirement account. It's very important to make investment decisions in a way that suits your total savings needs, your comfort level with risk and your time horizon until retirement.
What are assets, anyway?
In the investment world, assets break down into three primary classes: stocks, bonds and money market instruments. Each offers different levels of risk and return possibilities. Even within an asset class, you'll find choices with higher risk and higher return potential.
- Stocks carry higher risk than bonds or money markets. In the short term, prices may jump around a lot and you may even lose money — but historically, stocks have provided the greatest potential for long-term growth. However, there are no guarantees for the future.
- Bonds tend to behave differently than stocks, because they provide a fixed rate of return. When a bond matures, you should receive your principal back — but again, this is not guaranteed. Bonds offer a wide range of risk/return characteristics, from very conservative to higher risk.
- Money markets offer the lowest rate of return, but involve the lowest risk of fluctuations in value. They may be best for short-term goals or for emergency savings.
How do I know what to invest in?
Start by asking yourself the fundamental questions:
- What's my savings goal? How much do I expect to need when I retire?
- What's my level of risk tolerance? How comfortable am I experiencing any ups and downs in the value of my investments over time?
- What's my time horizon? How much time do I have until I need the money?
Your answers to these questions will help determine how you divide your money among the different asset classes (asset allocation) and also how you divide your money among different investment choices within each class (diversification). The goal of asset allocation and diversification is to manage risk by balancing the strong performance of some securities against any poor performance from others.
Keep in mind: Although investment options such as mutual funds can relieve you of the responsibility of choosing individual securities, the process of selecting a fund still requires careful thought.
Investment professionals see plenty of common mistakes among both new and experienced investors:
- Overreacting to short-term changes in the market
It's important to monitor your retirement portfolio but you should understand that ups and downs are likely to happen from time to time. If your retirement portfolio declines in value, remember that staying the course can provide potential long-term benefits.
- Emotional investing
We're all human. However, it's wise to try to make investment decisions based on your savings goal, time horizon and risk tolerance rather than your gut reactions. Investments are not good or bad by themselves — it depends on your broader objective.
- Following the rule of thumb
Don't let well-meaning advice-givers or "what everybody's doing" take the place of a careful review of your circumstances. If you ever have any questions or concerns, always consult your financial representative.
- Timing the market
It's very difficult to successfully predict market behavior and time your investments accordingly — even for seasoned investment experts. Instead, consider selecting your retirement investments with the goal of holding on to them for a long period of time. As your holding period lengthens, changes in the value of your portfolio may become less pronounced.
Staying on Track
The world never stands still — and neither should your portfolio. As changes happen in your life and the economy that could impact your future, it makes sense to adjust accordingly.
Significant life events
- Receiving a raise or inheritance may mean you have more money to contribute to your plan.
- Changes in marital status may mean you need to revise your beneficiary form and review your entire financial plan.
- Changes in tax laws may mean you can contribute more to your 401(k) or IRAs than you have been. Make sure you stay on top of contribution limits and discuss your options with your financial advisor.
- Job changes may mean it's time to consolidate a previous 401(k) within your current employer's plan, or roll them over into another vehicle such as an IRA.
By following up on the changes you have identified in your annual review, you can ensure that your retirement strategy remains current with your personal circumstances.
As an investor, you'll want to be aware of economic indicators and how they may potentially affect your portfolio.
- The Gross Domestic Product (GDP)
This is a measurement of overall economic growth. The rate of growth is particularly key — historically it has averaged between 2.5 and 3 percent annually, although there have been considerable fluctuations. The GDP is the total market value of all goods and services produced in the country in a given year. A country's rate of growth is important to investors because healthy growth may translate into relative stability in the financial markets.
- Interest rates
As controlled by the Federal Reserve, interest rates are related to our nation's growth rate and therefore can influence the performance of the financial markets. If the Fed believes an economic slowdown is likely, it may lower short-term rates in an attempt to stimulate the economy. When economic growth is strong, historically the Fed has followed the opposite strategy and has raised interest rates with the goal of preventing runaway growth (which can lead to inflation).
This figure represents the increase in the cost of goods and services over time and is measured by the Consumer Price Index, or CPI, on a monthly basis. While the inflation rate recently has averaged close to 4.0 percent, historically it has varied considerably through the years. Inflation is a major concern to retirement investors. When investing for retirement, it's important that your rate of return exceeds the rate of inflation.