Retirement Mutual Funds
Retirement Mutual Funds: Risk and Reappraisal
Retirement mutual funds took heavy losses during the market collapse in 2008 and 2009. Even target-date mutual funds for people planning to retire in 2010 – designed to provide a “glide path” for retirement mutual funds – lost 25% of their value last year. The general market collapse, and especially the effect on supposedly less risky target-date mutual funds, which are supposed to shift toward safer assets like bonds as the target date approaches, has prompted new scrutiny of retirement mutual funds and calls for new legislation.
Retirement investment experts, as well as consumer advocates, have been testifying on Capitol Hill about flaws in the management of retirement mutual funds. Among the reforms proposed are more disclosure, more conservative retirement investing mixes and even very conservative government-mandated retirement mutual funds. There is the danger that new legislation will provide protection against the crisis that has already, rather than better manage the future of retirement mutual funds . However, it’s clear that, while you should approach your retirement mutual fund with increased caution, they are still an important part of a solid retirement portfolio.
Why Retirement Mutual Funds Should Still Include Stocks
Current and future retirees are living longer, often much longer, than their parents did. This opens up a longer a retirement, and with that, the risk of outliving your retirement assets. To stretch your retirement income plan across the extra years you may be retired, your mutual funds for retirement may need to keep growing after your retirement. There are many strategies around supplemental retirement income, and one of them is having your mutual funds for retirement include stocks in retirement.
Another risk is inflation. The federal deficit is now a larger percentage of economic activity than at any time since World War II, and so inflation is likely to be an ongoing issue. To maintain your standard of living through the years of retirement, your retirement mutual fund will likely need to keep growing, which is where stocks in retirement come in. To make the most of the opportunities for growth, while minimizing their risks, you’ll need to be strategic.
Choosing and Managing Your Retirement Mutual Fund
The first thing to remember is that opportunities for growth always carry risk; don’t let anyone tell you otherwise. New legislation may include pushing managers of retirement mutual funds to disclose more details about their fees and more oversight of how they communicate with investors. But it’s also important to remember that you are in control of some of that risk – many mistakes around company retirement mutual funds are made by employees who don’t join the plan, don’t contribute or diversify enough, take out money when they change jobs, and don’t annuitize at retirement.
Other mistakes include not considering your particular situation closely enough; going forward the retirement mutual fund industry will pay more attention to factors like wealth, other supplemental retirement income, and particular personal and family objectives.
Take control by engaging more thoughtfully with your company’s retirement mutual fund, or by engaging with a self-directed fund. Whatever course you choose, make sure you and your fund remain dynamic, responsive and geared toward the balance of risk, growth and security that makes the most sense for you.
For help on thinking through your needs, take a look at our sections on retirement income, retirement portfolios, retirement budgets and retirement spending.
