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Build a secure financial future. |
Planning for your retirement can be intimidating. If you are uncertain about where to turn for retirement advice, the natural tendency is to do nothing. Unfortunately, this squanders the positive impact that long-term planning can have. CUNA Mutual is pleased to offer educational materials and calculators to assist you in your investment and retirement planning.
In addition to the resources below, we encourage you to speak to a representative of the CUNA Mutual Retirement & Investment Planning Service Center, available Monday through Friday, 8:00 am to 5:00 pm CST at 1-800-999-8786, Option 3.
Strategies to Help You Save Money
Understanding Investment Risk
Importance of Diversification
Educational Articles
Calculators
Strategies to Help You Save Money
Here are two ways you can save more money and watch your retirement savings grow:
Increase your contributions when you get a raise or bonus. When you get a raise or bonus, put some of the extra money you're gaining into the retirement plan. Remember your contributions are often deducted from your pay before income taxes are calculated. By having it automatically deposited into the plan, you don’t give yourself the opportunity to spend the extra money.
Take advantage of the employer match. If your employer offers a match on your retirement plan contributions, make sure you’re contributing enough to reap the full benefits of the match. The employer match gives you an immediate return on your contributions. Not contributing enough to get the full employer match is like refusing a bonus.
Increasing your plan contributions by just a few percentage levels can really add up. If you save just $5 more a week and it earns 6% annually, it could grow to almost $10,000 in 20 years.
Here’s an example of how you can maximize your savings by increasing your contributions. This example assumes an annual salary of $50,000, a $1 for $1 employer match on contributions up to 4% of pay, and an annual rate of return of 7%.
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2%
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$64,200
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$33.65
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3%
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$96,300
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$52.88
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4%
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$128,400
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$72.12
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While the difference in projected savings between a 2% and 4% contribution rate is significant, the impact on your paycheck may be less than you think. Use the Paycheck Calculator to learn how different contribution levels will impact your take-home pay.
Understanding Investment Risk
When investors think of "risk" they often consider only the potential for loss. However, if you think of risk as fluctuation in the short-term value of investments, gains and losses are simply part of the risk equation.
Since there is a balance between volatility and opportunity, many believe that you must accept some risk to achieve returns. The only risk-free investment is one with an unchanging value. Most investors would not consider this attractive.
Ultimately, you have to assess your particular tolerance to risk in order to invest successfully. Your risk tolerance is your ability to cope with declines in your investment value while you wait for your funds to return a profit. Whether you can ignore market fluctuations and focus on your long-term investing goals depends on the time you have until retirement, as well as your personality.
Most adults have developed skills to identify, understand, and successfully manage risk in their everyday lives. However, when it comes to investments, they feel their risk management skills do not apply, but they do. You can approach investment risk the same way that you approach other types of risk:
The first step is to understand what can lead to negative results or shortfalls. Following are some common investment mistakes:
- Buying when prices are high
- Selling when prices are low
- Failing to plan and set goals
- Harboring unrealistic expectations
- Allowing emotions to drive decisions
- Not diversifying assets
- Confusing fluctuation with loss
- Starting too late in life
Every investment has risk that can result in a loss of principal. The total investment risk is equal to the sum of market risk, which cannot be diversified, and company risk, which can be diversified.
Once you’ve identified a risk, the next step is to understand it. How likely is it that the risk will occur and how bad would the impact be if it did?
In life, you frequently take small risks, such as putting yourself in a position where you may cut yourself while shaving, but limit taking larger risks, such as standing out in a storm where you can be struck by lightning.
Since it is likely that the value of an investment will fluctuate, you should consider the impact. Some investments tend to fluctuate in value a great deal, others less so. Although there are no sure things, over 10 or more years, investments with the largest fluctuations generally show the greatest growth. An investment with wide price fluctuations may make sense for a long-term investor but may be inappropriate for someone with less time. Other considerations include how much fluctuation you personally feel comfortable with and what percentage of your assets you’re considering investing.
Once you understand the possible risks, it’s time to look at strategies to control them. Because it’s impossible to eliminate risk, even in guaranteed investments, the best you can do is control it. Risk-reducing tactics range from highly sophisticated mathematical strategies to classic, proven methods available to every investor. Five broad and proven strategies are:
- Diversify. Spread out your risks and opportunities. It’s the investment version of not putting all your eggs in one basket.
- Invest systematically. Put price fluctuations to work for you and reduce the average price you pay for shares in a mutual fund by investing identical amounts on a regular basis. (Of course, dollar cost averaging does not guarantee a profit or protect against a loss in a constantly declining market.)
- Invest for the long term. Ignore short term fluctuations in investments and focus on the long term. The longer you stay invested, the less likely it is that you’ll experience a negative return.
- Employ professional management. A seasoned, full time investment manager may be able to help you reduce your risk while increasing your return.
- Consult a financial professional. CUNA Mutual’s Retirement and Investment Planning Specialists can help you establish realistic goals and a plan to achieve them.
Your financial advisor can provide information and guidance based on experience, but the risk/reward tradeoff is yours alone. How you feel about an investment may be as important as your personal circumstances– especially if you’re already well informed. There is no right or wrong conclusion. Exploring the following questions will help you compare your alternatives and make an educated decision:
- What’s my potential return?
- What’s a reasonable holding period?
- What’s my own time horizon?
- What’s the likely fluctuation range?
- How will this investment help achieve my goals?
- What are the chances I’ll need this money during the preferred holding period?
- Are there other/better alternatives?
- What’s the realistic risk that I could lose principal?
- How much fluctuation is acceptable to me?
- How vulnerable is this investment to interest rate changes?
- How stable is the industry?
- What risk control strategies are available to me and which have I used?
Some decisions are easy, some are more difficult. Once you understand the risk/reward factors, trust your own level of personal comfort with an investment. If it feels right, proceed. If it doesn’t, either study the situation further and ask more questions or decide not to act. Remember, it’s your money and your decision.
Importance of Diversification
Most of us have heard the expression "Don't put all your eggs in one basket." In the world of investing, this means you should diversify your investments to reduce the risk of losing money.
As you probably know, past performance is not a guarantee of future success. If you have ALL your retirement money invested in the stock of a single company or just one investment account, you could easily lose it all. It doesn't matter how well they have done in the past, you should not bet your entire future on their performance.
“Diversify” doesn’t just mean that you should invest in a variety of companies or investment accounts; it also means that you should invest among different asset categories, such as Moderate Stock or Conservative Bond, to maximize returns and reach your goals, without taking undue risks.
When you diversify, you can benefit from the fact that different investment types have different risk/return characteristics, are likely to respond differently to market and economic conditions or events, and play unique roles in meeting specific financial needs.
For example, many investors enjoyed the rapid climb of technology stocks in the 1990s. Unfortunately, the bubble burst and the people who were not diversified saw large losses to their account. Because of this, they may have to postpone retirement while they work to regain their losses.
How you allocate your assets should depend on:
- How much time you have before retirement (Time Horizon)
- Your current and anticipated financial condition
- Your retirement life expectancy
- Your tolerance to the many risks associated with investing.
Because your investing profile will change, you should keep adjusting your asset mix when appropriate. If you have many years until retirement, you may want to invest in a model that tends to be more aggressive. As you near retirement, you should consider shifting your model to a more moderate/conservative strategy.
No matter what your overall strategy is, there is always a need for diversification.
Educational Articles
Financial Planning Tools & Calculators
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Loan Calculator allows you to calculate monthly payments when considering a loan.
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Retirement Road Test Calculator  (183 KB) helps you determine whether your retirement plan is headed in the right direction by analyzing and scoring your answers to ten questions.
This information is intended for educational purposes only. This is not a solicitation to buy or to be considered as investment advice or recommendation.
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