There are many retirement investment options to consider for your retirement planning. However, with such a large choice it is confusing both with which options to select as well as other complications like the tax implications.
The options you consider, or choose, will depend on your age, financial situation, risk profile as well as personal preferences. They will also depend on whether you have your own business or you work for someone else.
Many of the retirement investment options proposed by financial planners or advisers are great ... for themselves! It should never be forgotten that's how they earn their living and your investments are helping them build their own retirement fund.
My following advice and comments are objective as I have no vested interest in whatever decisions you make.
The advice of experts
The belief that the only way you will ever have enough money for a successful retirement is through the services of financial "experts" is an illusion.
However they do have an expert role. Each financial decision you take when investing for retirement will have a number legal, tax, risk and return implications. They are experts in the legal and the tax aspects.
Before getting to the traditional retirement investment portfolios here are a few other retirement finance ideas to consider.
Ideas over which you have far more control and whose outcomes are possibly easier to predict.
Options to Consider
If one is young enough one could build a portfolio of residential properties for rent. Provided the rental you receive covers the bond (or will in a reasonable short term) and the property is in an area where there is good rental demand, over the 20 to 30 year life of the bond you will own the property and continue to receive the rental income.
If, for example, you did this with four or five small, one or two bedroomed apartments the rental that one receives at retirement would probably be adequate. The rental rises at the rate of inflation and provides income for life.
The benefit you'd get from increasing property prices is irrelevant … the properties are the goose, not the egg!
This concept also works very well with industrial properties. I have a young friend, aged 36, who started out about 18 years ago with nothing. Through prudent purchases of industrial property he is now in the position that he never has to work again in his life.
Another often forgotten but increasingly important option is having your own business or investing in a number of small businesses.
As the world continues its path through major upheaval and change. More and more of the "things will come right" illusions (meaning; go back to what they used to be) will be shattered. This will create exciting opportunities for innovative, creative people. The business doesn't necessarily have to be full time (side hustles are now the rage) but over time it will build an income stream for your retirement.
Traditional retirement investment options
These are based on you saving a percentage of your salary and getting someone to invest it into a fund for you. Eventually after saving 15% for 40 years at a reasonable return you should have sufficient to retire.
However this outcome depends on a number of factors that are beyond your control. These factors include economic cycles, the return that the fund earns and the fees that are charged.
The investment options are usually recommended based on your age till retirement and your risk profile. With some asset allocation combination of stocks, bonds, property and cash.
You are offered a number of portfolio options which generally are heavily weighted with stocks in the early years and progressively become more risk averse as one heads towards retirement.
The logic is that when you are young you can afford to lose money as you have time to recover the loss. As you get older you do not have the time to recover, so your money is placed in lower return but safer investments.
My question is why take losses in the first place? A 30% loss in an investment means you require a 50% recovery to get back to where you started.
Many of the traditional investment strategies like a "buy and hold ... through thick and thin" and "never try to guess the market" are very questionable. That's not what the professional investors do so why should you?
Even Warren Buffett has said that this can be a mistake.
While you are told to "buy and hold" the professional investment portfolio managers will utilise your money. Not buying and holding but actively trading the market as it goes up and down … and in the process building their wealth.
Where are you with your retirement funding?
Another consideration with your retirement investment options depends on the stage you're at in your retirement fund accumulation. Circumstances may have resulted in you, at say age 55, having to have an extremely aggressive retirement planning strategy to even consider retirement.
With some jobs pension funds may be mandatory and you have no option but to invest in them. Companies may match your contribution. But from the time the money disappears into the fund you have very little control over the progress of your investment. These funds being channeled through various financial institutions into the financial markets.
At the end of the year you receive a fund statement. If the market is being driven by positive sentiment "irrational exuberance" you find that your returns have been very good. However if the market is being driven by negative sentiment you might find that you're a lot poorer than last year.
But whatever happens in the market your returns will have eroded by the fees taken by the financial institutions.
The role of the financial institutions
Financial institutions love the idea of the traditional retirement investment options. They are provided with a never ending stream of money and all they have to do is provide returns which meet the minimum expectations of the market.
However with these funds they manage to make enormous amounts of money for both themselves and the company's shareholders!
The question one could ask is: 'How do young investment specialists make so much money by the time they're in their early 30s that they can afford to retire?' Wouldn't this be a more attractive retirement investment option for everybody?
Take responsibility ... your later life depends on it
Be original, be creative, your retirement investment planning does not only have to consist of one option but should ideally have a combination.
It is time to challenge the conventional and grossly under performing traditional approach and look for other ways to benefit your life.
Final Warning: Not understanding your own responsibility, even as a rank amateur investor, will just assist your financial adviser to achieve his retirement far sooner than you will … and with far more money.
Retirement Financial Planning: Start working on your financial plan today
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