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10,000 turning 65 every day for the next 20 years

Published: Sunday, April 28, 2013 5:30 a.m. CDT

It is estimated that 10,000 baby boomers will be turning 65 each day for the next 20 years and many of them will depend on their 401(k) asset for income. 

Between 2010 and 2011 alone, the number of 401(k) participants who are retired or separated from employment increased by 24 percent, while the number of active participants decreased by 2-3 percent.  This means that individuals with varying degrees of investment knowledge must bear the responsibility for choosing investments that will either meet their retirement needs or fail to do so.

What’s more, this shift is taking place amid an uncertain economic climate.  Because of the volatile equity and fixed-income performances the past few years, successfully accumulating assets has become more of a challenge than ever. Generating sufficient retirement income on investments has become more difficult, as yield on treasuries fail to keep up with inflation – a situation likely to persist for the near future, with the Federal Reserve’s pledge to keep interest rates low through 2013. 

Not so long ago, financial planners assumed you could safely draw down 4 percent of your nest egg in retirement each year. New studies are suggesting that 2 percent may be the new 4 percent, due to lack of performance and low rates.

As the average lifespan increases, Americans will spend  more time in retirement than any point in history. To further complicate the matter, retiring is more expensive than ever and at the same time, they will spend more on health-care expenses than ever. A typical retired couple would need to set aside $270,000 just for health-care expenses in order to have a 90 percent chance of affording projected medical expenses as they age. All the while inflation could threaten to erode savings and the prospect of diminished Social Security and Medicare benefits throws the entire how-much-to-save equation into uncertainty. 

As a result, some studies suggest that defined-contribution plan participants seeking to maintain their lifestyles in retirement will need as much as 120 percent of their final pay at retirement. This is well beyond the traditional income replacement target of 70-90 percent. Because of this, it is imperative that retirement savers and retirees make wise investment decisions in their retirement plans.

Is there a possible solution overlooked? Exposure to global equities could potentially mean the difference between accumulating  enough assets for retirement or falling short. Investments in global equities and fixed income could help make the difference between generating sufficient income during retirement or not. 

However, these investments options are being largely ignored by participants in DC plans. Globalization could be the new era for DC plans. The problem is that these investment options are not available in plan lineups. Ninety-eight percent of DC plans include at least one global or international option, but this is probably not adequate. 

However, filling the international style boxes fund lineups with global investment offerings does not address the fundamental issue. The real problem is the participant does not understand the need for global exposure and in our opinion, some plan sponsors do not convey the growing importance of investing globally to these participants. 

Most participants do not understand the difference between an International Fund (exclusive of domestic) or a Global Fund, which can include U.S. domestic equities. Advisers who interact with plan sponsors and participants can help shape their education and communicate the importance of a global perspective.

In all, the goal is to help the sponsors and participants understand that more exposure to the entire world’s equity and fixed-income investments could make a significant difference in creating that best nest egg and making it last.  Simply put, the world’s investment landscape has shifted and retirement plan savers and plan sponsors alike must understand the implications of this shift.

• Terry Maryniw and Aaron Maryniw are investment advisers with Maryniw Financial, 901 E. Oak St., Lake in the Hills. Email maryniw@maryniw.com, call 847-658-9251 or visit www.maryniwfinancial.com.

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