Stocked for Success? Finding an Appropriate Rate of Return for Your Retirement Plan

Admin • December 15, 2023

Planning for retirement can be quite daunting given the multitude of questions to tackle and gaps to fill. When faced with numerous unknowns, where do you even start?

Rest assured that you’re not alone if you’ve ever felt a bit stuck in planning for your future. After all, the game changes entirely if you envision retiring in a place with a reputation for sky-high living costs like California, compared to a more wallet-friendly option like Thailand. Plus, who can predict the curveballs life might throw your way between now and retirement?

But even with all the unknowns, you should still visualize what you want your retirement to look like and set goals to achieve, even if those goals need some fine-tuning along the way.

One such goal is figuring out the rate of return to aim for when investing for retirement. It’s a goal that might need some tweaking as your circumstances change, but it’s an essential variable in connecting the dots. Why? Because it helps you figure out another missing piece of the puzzle — how much you need to save for retirement.

What Rate of Return Should I Use for Retirement Planning?

If you’re curious about what rate of return you should use for retirement planning, stay tuned. We’re about to break it down into a few key factors:

Your time horizon
Your risk tolerance
Your asset allocation

If you’re all in for securing your future, let’s jump right in!

1. Your Time Horizon

Your time horizon is the stretch between now and when you need to tap into your retirement nest egg, and it significantly shapes your investment strategy and the rate of return you aim for.

If you have a longer time horizon, it gives you the flexibility to have a more diversified portfolio that includes a mix of assets with varying levels of risk and potential return because you have the leeway to ride out the ups and downs of the market.

Conversely, if you have a shorter time horizon, your focus might pivot from chasing growth to protecting the nest egg you’ve worked hard to build. Adopting a more preservation-oriented strategy could mean streamlining your investment choices to more conservative options, like bonds, which generally offer lower returns.

Historically, the average annual rate of return for the overall stock market, measured by indices like the S&P 500, has been around 10% per year . That might sound like an appealing annual rate of return on retirement investments, but the reality is that there are years when the market falls short of expectations and others when it will exceed them.

What does that mean for you? It means you need to align your investments with the timeline leading up to your retirement.

Imagine you’re two years away from retirement. Opting for a higher-risk portfolio in pursuit of a stellar 10% annual return might not be the most strategic move because those two years may turn out to be turbulent in the markets. You’d risk a loss you might not fully recover from.

The consensus is that the longer your time horizon, the more risk you can afford to take and the higher the rate of return you can target, given the time you have to recover from any setbacks. But it’s not just about the time you’ve got — it’s also about the volatility you can stomach, which we’ll cover next!

2. Your Risk Tolerance

Every investor dreams of reaping all the rewards, but not everyone can shoulder all the risks needed to achieve those rewards.

Enter risk tolerance, a key factor in deciding the appropriate rate of return for your portfolio. We’ve touched on how your time horizon influences your risk tolerance, but let’s not forget the more personal and emotional aspects — considerations like your financial needs and goals and your comfort level when investing.

Your Financial Needs and Goals

The magnitude of your goals has a direct impact on your risk tolerance. For some, the objective might be as straightforward as securing a comfortable retirement without outliving their nest egg.

Meanwhile, some aspire to more profound objectives, such as aiming for a secure retirement while concurrently creating a lasting legacy for future generations. Such ambitious objectives might call for higher returns and a willingness to take some risks over the investment horizon.

Your Comfort Level

No matter your age, current circumstances, or goals, the bottom line is this: some investors can handle the natural highs and lows of the markets, while others find it highly nerve-wracking.

If there’s a disconnect between your risk tolerance and the actual risk in your portfolio, it can result in emotional stress and less-than-ideal investment decisions—such as deciding to cash out your entire portfolio when things start getting a bit shaky.

If you prefer a more conservative approach due to a low-risk tolerance, it might require you to boost your savings to reach your financial goals.

You probably have a broad sense of your risk tolerance from what we’ve covered here, but if you want to take it a step further, find out if any of your financial institutions offer a risk tolerance questionnaire. Alternatively, you can consult with an advisor who can provide more personalized insights into your specific circumstances.

3. Your Asset Allocation

Let’s backtrack for a moment to the fact that the average annual return for the overall stock market, as measured by indices like the S&P 500, has historically hovered around 10% per year.

The S&P 500 is a market index that tracks the performance of the 500 largest (and some of the most successful) public companies in the U.S. (think: Johnson & Johnson, Procter & Gamble, Berkshire Hathaway, Apple, Microsoft, to name a few).

With that in mind, it’s not practical to stash all your eggs in bonds and cash and anticipate a similar outcome to the historical performance of the overall market. Similarly, going all-in on one of the riskier asset classes — equities — doesn’t quite align with the goal of low-risk investments with minimal downside.

How you divide your portfolio across various assets matters in determining a realistic rate of return.

To get a snapshot of your current portfolio, you should be able to log into your account(s) or review statements to find a breakdown of your investments and their historical performance and returns. Understanding your current allocation and its historical performance is a helpful way to gauge a realistic rate of return for the future (and helps you assess if any changes are in order!).

Just like your time horizon and risk tolerance, your asset allocation might require some fine-tuning as you navigate different phases of life and adapt to the ever-changing market landscape .

Assembling the Pieces to Find Your “Ideal” Rate of Return

It’s no secret that personal finance is, well, personal. There isn’t some generic instruction manual for pinpointing the perfect rate of return for retirement (and not to mention that this “perfect” rate would change over time).

Online calculators come in handy for plugging in variables like your age, current nest egg, and monthly savings and crunching the numbers to give you an idea if you’re on the right track or if some tweaks are in order.

Nonetheless, drawing from our experience , we understand the intricacies of assembling all the pieces for a comprehensive and strategic retirement plan. We understand that, for some, figuring out what rate of return they should use for retirement planning or crafting any part of their own retirement plan can be intimidating.

If that’s you, we’d love to get to know you and see how we can help you get unstuck in planning for your future, so send us an email at info@fivepinewealth.com or give us a call at 877.333.1015 to grab some time on our calendar! We can’t wait to learn more about your goals and work together to fill in the missing pieces, guiding you toward the retirement you’ve always envisioned.

The post Stocked for Success? Finding an Appropriate Rate of Return for Your Retirement Plan appeared first on Five Pine Wealth Management.

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Preparing for Retirement Without Compromising Today: Savings Strategies for Your 50s

February 21, 2025

Somewhere in adulthood, the old question of “What do you want to be when you grow up?” morphs into “ What do you want to do when you retire?” Some people dream about their retirement for decades, while others barely give it a thought. Either way, by the time you reach your 50s, you’ll benefit from building a retirement plan that doesn’t force you to sacrifice all of life’s joys today. Retirement planning in your 50s is less about radical changes and more about making intelligent, intentional decisions. Let’s dive in. By your 50s, you’ve likely hit your peak earning years. That’s the good news. The not-so-great news? The clock is ticking on the years left to build your nest egg. Don’t panic. With a strategic approach, you can set yourself up for a secure retirement without feeling like you’re putting life on pause. Your 50s are also a time to reassess priorities. Kids might be leaving the house (goodbye, endless grocery bills!), and you might have more flexibility in allocating your income. This decade is the perfect opportunity to course-correct and make up for any lost time. 4 Retirement Savings Strategies for Your 50s This decade is the perfect time to implement strategies that will help you coast right into your golden years. 1. Max Out Retirement Accounts The IRS gives a little extra love to folks 50 and over in the form of catch-up contributions. For 2024, you can contribute up to $30,500 to your 401(k) ($23,000 plus a $7,500 catch-up contribution). Don’t have a 401(k)? No problem. With an IRA, you can add an extra $1,000 to the usual $7000 contribution limit. These boosts may seem small, but they add up fast, especially with compounding returns working their magic. 2. Automate Your Savings Automating contributions ensures you’re consistently saving without even thinking about it. Set up direct deposits into your retirement accounts so saving becomes as effortless as your morning coffee routine. If you get a raise, consider earmarking most of it for your savings—future you will thank you. 3. Diversify Investments By now, you’ve likely heard that “diversification” is key, but what does it mean for you? In your 50s, you’re likely transitioning from a more aggressive portfolio to a slightly more conservative one. That doesn’t mean selling all your stocks and parking your money in bonds, but rather finding a balance that aligns with your risk tolerance and timeline. 4. Pay Down High-Interest Debt Interest rates on credit cards or other high-interest loans can drain funds that could otherwise be growing in retirement accounts. Paying these off first will free up cash flow for savings. Catching Up on Retirement Savings If you’re behind on retirement savings, don’t stress. There are plenty of ways to catch up while still enjoying life today: Reevaluate Your Budget : Start by taking a close look at where your money is going. Are there subscriptions you’ve forgotten about? Could dining out be scaled back slightly? You don’t have to eliminate all your “wants”—just trim the fat. Even reallocating $200 a month can lead to significant savings over time. Downsize Strategically : Empty nesters, this one’s for you. If your current home has more space than you need, downsizing could free up substantial equity for retirement savings. Smaller homes also mean lower utility bills, maintenance costs, and property taxes. Leverage Catch-Up Contributions : As mentioned earlier, these higher contribution limits for people over 50 are a game-changer. Pair this with any employer-matching contributions, and you’ve got a recipe for rapid savings growth. Delay Social Security : While Social Security might feel like a safety net, waiting to claim it can significantly increase your benefits. Your benefits grow every year you delay claiming beyond your full retirement age (up to 70). If you can, let those checks wait while your investments continue to work. Explore Additional Income Streams : Retirement doesn’t have to mean quitting work entirely. Many people in their 50s find side hustles or part-time work that aligns with their interests. Whether it’s consulting, teaching, or turning a hobby into income, these earnings can supplement savings without feeling like a burden. Balancing Retirement Planning with Enjoying Today Now for the part everyone cares about: How do you plan for tomorrow without ruining today? Here’s how to strike the balance: Set Clear Goals What does retirement look like for you? Is it traveling the world, spending more time with family, or pursuing hobbies you love? Knowing your “why” helps make the sacrifices feel worthwhile. It also gives you a clearer target to aim for. Embrace Experiences Over Things Research shows that spending on experiences—like vacations, concerts, or classes—provides longer-lasting happiness than material goods. Plus, experiences don’t have to break the bank. Look for ways to create memories without overspending. Plan for Mini-Retirements Who says you have to wait until you’re 65 to enjoy some of that freedom? Consider taking shorter breaks or extended vacations now to recharge and enjoy life. With careful planning, these “mini-retirements” won’t derail your long-term goals. Prioritize Health One of the best investments you can make in your future is in your health. Regular exercise, a balanced diet, and preventive healthcare can reduce medical expenses down the road and ensure you can fully enjoy your retirement. Celebrate Small Wins Saving for retirement is a marathon, not a sprint. Celebrate progress along the way—whether it’s maxing out your 401(k) for the first time or finally paying off that lingering debt. 3 Practical Action Steps to Get Started Calculate Your Retirement Needs : Estimate how much you’ll need to maintain your desired lifestyle. Don’t forget to factor in healthcare costs, home maintenance, inflation, and leisure activities. Review Insurance Coverage : Make sure you’re adequately covered with health, life, and long-term care insurance. These policies can protect your savings from unexpected expenses. Adjust Your Asset Allocation : As you approach retirement, consider shifting some of your investments into more stable options. This will minimize the risk of major losses as you approach the time when you will need the money. How Five Pine Wealth Management Can Help We can help you create a tailored plan, taking into account your current savings, goals, and timeline. With our experience, we can advise you on maximizing tax-advantaged accounts and minimizing unnecessary risks. Preparing for retirement in your 50s doesn’t mean sacrificing today’s joys. With thoughtful planning, strategic savings, and a focus on balance, you can enjoy the present while setting yourself up for a comfortable future. Start today, by scheduling a meeting with us. Email info@fivepinewealth.com or call us at: 877.333.1015 to take it one step at a time, and remember: It’s never too late to build the retirement you deserve.

Robo Advisor vs Financial Advisor: Why Automation Can’t Beat the Human Touch

February 14, 2025

In today's fast-paced and tech-driven world, convenience is a hot commodity. Businesses across industries have had to pivot to meet the demands of consumers who crave efficiency and ease. Think about how brick-and-mortar retailers have transformed into online shopping havens with a greatly increased selection of products, the ease of shopping at all hours from home, or how delivery services have boomed as an effortless solution to mealtime dilemmas, to name a few. If businesses don't prioritize easy accessibility and simplicity, many risk losing consumers. The finance industry is no exception — in fact, it's a prime example of an industry constantly innovating to simplify highly sought-after services like investing. Case in point? Robo-advisors. What Is a Robo-Advisor? If you're unfamiliar with the term, you could likely guess its meaning from the name alone. More officially, it refers to a software application that provides automated, algorithm-driven investment management with minimal human intervention. These platforms leverage technology to streamline and optimize the investment process. They typically offer a curated selection of investment options tailored to an investor's goals, risk tolerance, and time horizon. An automated solution for building wealth? Sounds promising! But while it might seem like an all-good, no-bad, very-welcomed shift in the industry, it's important to remember that with the positives may come some serious drawbacks. Let's explore both sides: robo advisor pros and cons. Robo-Advisor Pros First off, let's highlight the positives. A big one is that many individuals who had never even considered investing before might still be in the same position today if it weren't for accessible solutions like robo-advisors. They have opened doors for countless people to enter the world of investing, which is exciting! But let's look at a few other benefits that have fueled their increasing popularity: Accessibility and Convenience: These are two key factors that influence consumer satisfaction, and robo-advisors deliver precisely that. They are easily accessible online or through mobile apps. Their user-friendly interfaces make it easy for investors to open an account and set up automated contributions within minutes, monitor their investments, and make adjustments — all without the need for face-to-face meetings or phone calls with a financial advisor. Automatic Diversification: If you're new to investing or have limited knowledge, robo-advisors alleviate the stress of deciding how to invest. Using sophisticated algorithms, they offer diversified investment portfolios based on your risk tolerance, investment goals, and how soon you may need to access your invested money. This approach can effectively mitigate risk and minimize the impact of market volatility on investment returns. Low Cost: Robo-advisors usually come with lower fees than traditional financial advisors who actively manage your portfolio. Through automation and technology, these platforms can offer their services at a lower cost, making investment management more accessible to a broader range of investors, including those with smaller portfolios. These benefits are precisely what many investors are seeking as they begin their investing journey, positioning robo-advisors as a solution for some. Robo-Advisor Cons While robo-advisors have gained popularity for their evident and understandable benefits, it's essential to acknowledge that every innovation or advancement often has accompanying drawbacks. Let's explore some of them: No Human Touch: Finances are deeply personal. Beyond mere math, financial decisions are often emotionally driven. While a robo-advisor can efficiently manage your investments using algorithms and automation, it can't engage in comforting conversations or provide reassurance during turbulent market conditions to prevent impulse decisions driven by fear or uncertainty. Nor can it offer encouragement to keep going or remind you of your progress in your financial journey when times get tough. Sometimes, human interaction and guidance are indispensable. Limited Customization: Robo-advisors typically offer a selection of pre-built portfolios made up of ETFs (exchange-traded funds) or mutual funds. While these portfolios provide diversification that suits many investors, they're not a perfect fit for everyone. Take, for example, an investor with specific preferences, like avoiding certain companies or industries or desiring to invest in individual stocks. In such cases, robo-advisors might be too restrictive. Additionally, robo-advisors might not have the capacity to deal with more complex financial situations, such as tax optimization or retirement income planning for high-net-worth individuals. Limited Area of Focus: While the allure of robo-advisors partially lies in their simplicity, that can equally be a drawback. Because robo-advisors primarily focus on investment management, you might miss out on the holistic approach of a human financial advisor who considers various aspects of your financial situation. A robo-advisor doesn't consider factors like high-interest debt you may have, for example, which might be wiser to pay down before aggressively investing. Nor does it account for the possibility of not having an adequate emergency fund or other pressing financial obligations that take priority. When it comes to investing, having a financial advisor looking at your entire financial landscape can provide valuable insights into the most suitable account types to open, ideal contribution amounts, and the target rate of return to aim for. These drawbacks highlight the importance of understanding the limitations of a robo advisor vs. a financial advisor and considering them in the context of your financial goals, preferences, and circumstances. Robo Advisors vs. Financial Advisors: How Five Pine Wealth Management Can Add a Personal Touch to Your Finances The balance between the positive and negative aspects is a common challenge of many new technologies, robo-advisors included. As with any financial decision, investors should thoughtfully evaluate their individual needs and preferences before opting for these platforms. As you might be able to guess, we here at Five Pine Wealth Management place immense value on the personal touch and genuine passion of a human financial advisor. It's the driving force behind everything we do. We believe in understanding your circumstances, empathizing with your concerns, building a long-lasting relationship, and providing personalized guidance for each client. While we can recognize the advantages of robo-advisors, we can't ignore the fact that they can't replicate the human element in financial planning. The relationship with a financial advisor goes beyond mere numbers. And if that's what you're looking for, we'd love to chat! Contact us at info@fivepinewealth.com or 877.333.1015 to schedule a meeting.