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The Advantages and Disadvantages of Popular Retirement Strategies

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retirementThere is no perfect solution for retirement just as there is no single answer to most of life’s challenges. You goal is a stable financial situation in your golden years and you’re looking for the best way to earn enough money to last you through your retirement. There is a variety of retirement investment and savings strategies and each have their own advantages and drawbacks. The type of approach you choose depends on how much money you need to make in how much time, what investing style you prefer and what kind of assets you have.

Retirement Annuities

The retirement annuity viewed by some as the safest choice for guaranteed returns. Annuities are often marketed as investments intended to guard your future income and assets. However, this depends on timing. If the annuity peaks at the wrong time, it could interfere with your long-term investment goals. Fixed annuities, which are not connected to stocks and bonds but provide a fixed payment, tend to peak when the market dips. The disadvantage of a fixed annuity is that when the market recovers, you are locked into low rates. Another thing to keep in mind is that you may pay a high penalty fee if you break the contract of the annuity.

Unlike fixed annuities, variable annuities tend to do well in a market is high, because these annuities and are somewhat levered to stock performance. This provides the equal and opposite problem of fixed annuity.  Your variable annuity may be doing well in a bull market, but if the market slows down, you are tied to an annuity that somewhat depends on stock performance.

Is the Stock Market Reliable?

Whether you invest in the stock market individually or with the help of a broker/adviser, you may question whether stocks are good for retirement funds. Stocks, in general, have the best performance of any liquid asset class, but market fluctuations and volatility sometimes cause people to fear stocks. Day traders can become obsessed with the ups and downs stock market on a daily or even hourly basis, but if you are investing in long-term growth stocks, you do not need to be swayed by the shocks of the market. If you own stock in solid companies, the short-term volatility should smooth out with time.

Retirement Money Managers

If you don’t have to time, or expertise, to search for stocks and other investment vehicles, an option is working with a money manager. There are many different types of money management firms and it may be confusing to tell the difference between services. Brokers and financial advisors will do research on stocks and other investment vehicles and are given a general fee and a commission for every trade they make.

Some feel that the commission incentivizes the broker to make lucrative investment recommendations, although it is important to point out that the broker has a vested interest in making as many trades as possible because of the commission he or she receives. This may be problematic for those who prefer to buy blue-chip such stocks and hold them long-term. The alternative to brokers is fee-only money managers that do not charge a commission for trades or charge for their products. Fisher Investments is an example of a fee-based money management firm that manages its client’s assets. High-touch customer service, investing experience, and seasoned professionals led Fisher Investments CEO Damian Ornani, are top priorities for this firm If you prefer a more automated approach, “robo advisors” such as Wealthfront and Betterment, might be a better choice for you.

Hedge Funds

You may have heard of hedge funds and are attracted to their intriguing name and their upscale reputation. Hedge funds are for high net worth investors and involve intricate strategies for managing investment vehicles. Hedge funds are like an exclusive club and they often ask for a minimum of $1 million for certain period of time. If you have $1 million to spare that you don’t need to use for another seven years, hedge funds may be a good choice if you trust the person managing funds.

Making a Choice

There are so many choices when it comes to preparing for your retirement, but in reality, you do not need to choose just one solution. Successful preparation for retirement can include a diverse approach including 401(k), stocks, bonds, and other investment vehicles. You can put your own strategies to the test or rely on a money manager. Choose between a broker that may have a more aggressive approach to investing or look for a long-term, conservative investing style through a fee-based advisor. Think about your investment goals, how much money you will need for retirement, and what kind of investment style works for you.


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