Don ’ t Bet Your Retirement On An 8 % Return
By Glen McKenzie
In investing , time in the market is crucial . If past growth rates continue , the time you leave your savings alone actually matters more than the amount you save .
The problem with that , though , is that past growth rates probably won ’ t continue . Over the last 30 years , the stock market has averaged 7.8 % growth , a rate that is the foundation of many retirement plans . If you ’ ve invested your whole 401 ( k ) in total market index funds hoping for that growth , you may be unpleasantly surprised .
The 7.8 % growth is a historical anomaly driven by demographic factors . Because of slowing industrial growth , decreasing population growth , and competitive overseas markets , that rate is projected to slow to 2 % in the next year , and possibly past that .
This drop has significant ramifications . For 25-year-olds saving for retirement , a two-point drop over the next decade could necessitate saving twice as much before they retire .
Dealing with macroeconomic trends can be overwhelming . These steps can prepare your portfolio for struggling gains .
1 . Max out employer match About 31 % of American workers with access to a 401 ( k ) don ’ t use it . Beyond the missed savings , employees are losing out on matching funds programs .
Matching funds programs are essentially interest payments . Your company will pay 100 % interest on your 401 ( k ) deposits . Increasing your 401 ( k ) contributions to the maximum match level will minimize the impact of slow growth within your portfolio .
2 . Watch the fees Ask your HR representative for a breakdown of your company ’ s investment management fees .
Review your fees and gauge if they ’ re reasonable . Most large companies have fees of 0.5 %, with the numbers increasing for smaller companies to about 1.4 %. If you ’ re paying more , consider switching the funds you ’ re using .
24 DENTON COUNTY Living Well Magazine | NOVEMBER / DECEMBER 2017