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Three Retirement Planning Challenges Most People Face

May 13, 2022

Planning for retirement can seem complex, and current financial markets may make the prospect even more daunting than before. While there are unique challenges to face when creating a retirement plan, there are some ways to help solve these problems. Let’s take a closer look at three key challenges you may face so you can better prepare for your golden years.

Market Risk/Market Volatility

Stock markets are subject to periods of extreme volatility, which can impact your current investments as well as your retirement funds. Accounts that are not diversified, such as those with investments mostly in stocks with no equity investments, may see significant losses. Investors can play the long game and wait for gains to return, but those close to retirement age might not have the luxury of time to ride out the market. It’s important to keep a close eye on your retirement accounts through strong and weak markets to know exactly where your money stands. If you’re not seeing the returns you need on a traditional retirement account tied to the stock market, consider alternate investment strategies to hedge against volatility and diversify your individual portfolio. 

Annuities, certificates of deposit, and treasury bonds offer lower-risk options for investing during times of volatility, though the returns are more modest than other alternatives. A REIT can provide a long-term investment opportunity with potential for growth income as well as protection against market volatility and inflation. In fact, you might already have REITs baked into your existing 401K or IRA, depending on the plan. Creating a diverse portfolio means adding to your existing retirement plan with a mix of other investments to better protect your financial future against potential loss. 

Budgeting for Savings

It’s estimated that nearly half of Americans may be unable to maintain their pre-retirement lifestyles after retiring, and this can be partially due to not budgeting savings appropriately. However, budgeting for savings can be difficult for a number of reasons. You may find that you don’t have much left over every week to put into a retirement account or you may be unsure about how much you need to put away to meet your retirement goals. Some people simply forget to stick to a regular schedule of putting money away in savings accounts and investment accounts. Regardless of the challenges you face with budgeting, remember that putting money away for your future shouldn’t be put off until tomorrow. Retirement planning should become a regular part of your budgeting every month.

So how can the challenge of budgeting for retirement savings be overcome? Automating your savings and investments every month can make it easier to stick to your savings plan. Auto-invest features, like the one offered by DiversyFund, mean you don’t have to remember to schedule a transfer of funds. You can also budget your personal expenses more easily each month when you know you’ll have savings and investment funds leaving your accounts on a specific date. You can increase the amount you invest as needed to help ensure you have enough money to enjoy retirement, and many automatic investing options let you watch your savings or portfolio grow right on your smartphone or tablet. If you already invest in a mutual fund or have a similar investment account, it’s a good idea to see if automatic investments are available to you.

Unfavorable Interest Rates

Low interest rates may be great for purchasing a new home or a new car, but they can be devastating for a traditional savings account or your certificates of deposit. This, in turn, impacts retirement planning. Even as interest rates begin to climb, savers don’t always reap the same rewards that banks do. Increasingly, big banks are not as willing to raise rates on savings accounts, CDs, and other popular savings vehicles. Lower rates mean very few benefits for account holders, including people who are approaching retirement and used savings as a key part of their planning for years. 

Instead of looking to bank accounts to grow your wealth and prepare for retirement, it’s a good idea to explore other investment avenues. Diversifying your portfolio means you can hedge against lower interest rates by spreading your money out over several different types of investments. REITs, for example, let you invest in real estate without committing to purchasing an entire property on your own. An estimated 145 million people already own REITs through their existing retirement funds, but you can also invest in one on your own with as little as $500. ETFs allow you to invest in the stock market with some protection by spreading your money across lots of different stocks instead of focusing on one or two core companies. Looking for alternative asset investment strategies can help you stay on target for your retirement goals without depending on the interest rates your bank currently offers. 

Everyone’s retirement plan will be different, depending on current lifestyles, retirement goals, and other personal factors. The one thing all future retirees have in common is the need to plan ahead. While there are a lot of challenges to face as you prepare for retirement, looking at different ways to invest your money can help you create a personalized plan and portfolio that works for you. Be sure to discuss your potential retirement plan with a financial professional. 

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