Creating a strong retirement plan is the overall goal for every retiree. Problem is, as you grow older, you may begin to become nervous about your funds, especially when the economy isn't looking so well. In these times of worry, it's particularly easy to panic and make decisions that you might otherwise not make.
For example, you may decide that switching your investments to cash will help your retirement plan. You may believe that by avoiding the volatile stock market, you will be able to protect your funds. Here, we have provided you with a few tips on why switching to cash is not a solid plan, and how to avoid risk in other ways.Tip #1 Reevaluate how you look at the short-term.
A big reason why retirees may consider switching to cash is that they are frightened by the market. After all, stocks and similar financial products can be considered risky, at best. This is why changing to cash could seem so attractive. But when you look at a real world situation, this doesn't seem like such a solid plan. In the past year, stocks and bonds have had an overall increase of 10% and 7%, respectively. This would have translated to a loss of portfolio value between then and now if you had previously decided to switch to cash.
Tip #2: Make alterations concerning how you deal with the long-term.
When you consider the current state of the market, switching to cash might sound like a good plan. But as the years go by, you might quickly realize that inflation has become your worst enemy. The issue with inflation is that it will often outpace any gains that you may receive from such financial products as money market funds and savings accounts. And this could spell definite trouble for your overall retirement plan and financial portfolio, especially when you also realize that you will need to pay income tax on any increases to these types of products.
Tip #3: Life expectancy is an element to consider.
Increases in medical treatments and health programs are enabling the human race to expect a longer lifespan. You need to plan for such things. Even once a person has reached retirement age, it's not uncommon to live an additional 20-30 years, or even more. In order to maintain a strong financial portfolio, you must take this into consideration. This is another reason why switching to cash is a bad idea. If you do, your gains won't be enough to secure your future.
Tip #4: If you have a company pension, use it to your advantage.
Although company pensions aren't nearly as plentiful as they have been in the past, some retirees still have them. If you're one of the lucky ones, you can use this fact to your advantage as a way to avoid switching to cash. Since your pension will be providing you with a guaranteed income, you can afford to take a little risk now and then. There's no reason to go overboard, of course, but investing in stocks can be a good option for your retirement plan.
Tip #5: Diversify.
While it's true that switching to cash isn't a strong choice, making cash part of your portfolio is a solid option. By diversifying your funds between a variety of strattegies, you'll be doing a good job of watching out for both the short-term and long-term. Just be sure that you find a healthy balance, and consult a professional to get a clear picture of what is appropriate for your retirement goals.
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