You may have heard something about a retirement crisis. Now, your reaction may have been to look at your 401(k) balance and think, “Yup, that’s me” or “No crisis here.” But wherever you fall on the spectrum between fatalistic acceptance and cheerful confidence, there are plenty of reasons to rethink your retirement investing. Here are five of them:
1. You’re going to live longer
If you are 60 years old, the average retirement life expectancy the day you started work was about ten years. Today, you can expect a retirement that’s two to three times longer. It would be difficult to overstate the consequences of longevity. Managing it will require more savings, perhaps more growth in your portfolio and certainly a lot more careful planning to make your money last.
2. Bonds won’t carry the weight
Thirty years ago, you could have invested your retirement portfolio in bonds and enjoyed income, relative “safety” and growth as interest rates steadily declined. That’s not likely to be the case the next thirty years. Not only have yields been at sustained lows, if rates do begin to rise, the value of bond portfolios is likely to take a hit. The expected returns of bonds may force you to rethink your portfolio and consider fixed income exposure from more regions and credit qualities.
3. Risk ignores borders
Markets are more interconnected than ever before. Risks from economic factors, interest rates, regulations, political upheaval and currency exposure can affect returns across sectors and asset classes. Simply diversifying between U.S. large cap stocks and bonds may not be enough. You may need to consider dedicating portions of your portfolio to potentially unfamiliar regions, sectors and other financial instruments.