INTEL SOURCE LINK: money.msn.com
By Anthony Mirhaydari
Experts say workers will need ever-larger nest eggs to retire. It’s possible to save enough, but only with stocks and not without risk. Here’s a look at the road that might lead to a big payoff.
Will you be able to retire comfortably?
Like so much in life, it depends. Will Social Security still be around, and if so, will it provide more than a pittance? Will Medicare cover the costs of health care as you age?
More immediately, will you be able to keep working until you’re ready to retire? And if so, will you earn enough to keep socking money away every month?
And, most important, will you be able to earn enough on your savings to fund a retirement?
When I wrote on this topic back in late 2010, in “How to build a million-dollar 401k,” I picked a number often cited by financial planners that seemed like a nice, round target. I said getting there would require buying stocks and mean accepting some risk, at a time when neither was very popular. I tried to be realistic, but I hope it made $1 million seem not so out of reach.
But there’s a hitch. For the young, at least, that may not be nearly enough.
No wonder they’re in the streets
A recent survey of investment advisers suggests that for members of the up-and-coming Gen Y cohort, $2 million is a better retirement target.
Those not born in that 1977-to-1994 window aren’t off the hook, either. For the more seasoned out there, especially baby boomers who have postponed saving for fast-approaching retirement, a similarly aggressive strategy will be needed to make up for lost time.
•Related: The best funds for your 401k in 2012
Is this doable? I think it is. But it will require more diligence, dexterity and determination than was required in the go-go 1980s and 1990s, an era the entire financial advisory industry and its “buy and hold” mentality remains fixated on. And it will require people to end their long love affair with bonds, because those supposedly reliable fixed-income assets look set to underperform for years to come.
First, let’s address the elephant in the room: skepticism that this is even possible, and a creeping feeling that unless you’re a Wall Street trader or a hedge-fund jockey, the system is hopelessly stacked against you. Because paralysis is not going to get anyone to $2 million.
Yes, the market has failed us
It’s easy to forget, with all the emphasis on CEO pay, banker bonuses, insider trading, scandals, fraud and such, but half of the stock market’s two-part mission is to help average Americans build wealth, provide for their families and save for retirement.
(The other half of the stock market’s mission is to funnel wealth to entrepreneurs and fast-growing businesses. I’d argue it’s failing here as well — witness the recent string of failed initial public offerings and the accumulation of idle cash on the books of America’s largest companies — but that’s a story for another day.)
The stock market is also the institution by which the social contract of American capitalism — that while not all share in the spoils of growth equally, all can participate in it — is made manifest.
Yet, by just about any measure you’d care to use, Wall Street has been failing the average investor miserably for more than a decade. No wonder the Occupy Wall Street movement generated so much heat before the chill of winter and the holidays set in.
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