The Best Retirement Plan is Simple

Since I've been working on my retirement number recently, the subject of retirement seems to be on my mind a lot more. Yeah, I still have over 20 years of work left -- even if I retire at 65, which I hope not to -- but it's still on my mind. Good thing too, since it takes a bundle of money to retire properly.

Here's a piece from Money magazine that suggests that the best retirement investment plan is a simple one. We'll start by laying out the scene -- and talking about how investment companies are finding all sorts of ways to "help" you out with retirement:

With the market struggling to eke out even meager gains this year, you may be tempted to look beyond traditional investments for something, anything, to fatten up your retirement account. Financial services firms, of course, are only too eager to oblige with a growing smorgasbord of "alternative" investments - oil-well partnerships, direct investments in privately held companies, foreign currency ETFs - that seem to offer an inside track to superior gains.

But just because it's easier to get into more "sophisticated" investments, does that mean you should? I say no. While exotic investments may seem like an ideal way to revive a flagging retirement account, they often come with risks and onerous fees that could derail your retirement rather than enhance it.

As many of you know, I'm pretty suspicious of financial services firms and financial advisors. Many of them are simply looking for ways to make your money become their money. Yes, there are good ones out there (I like Vanguard, for instance) but you need to be on guard. The bad seem to far out-weigh the good.

The article goes on to tell why these investments aren't a great deal for investors (for instance, many cost a fortune, thus severely reducing your total return) before getting to the bottom line:

My advice: Ignore the siren song of sophisticated investments. Either you'll end up paying huge fees for a magic investing touch that may or may not be there or you'll need incredible timing to come out ahead in the long run.

At the end of the day, what really creates the wealth you need to retire is the long-term growth potential of companies large and small. And you don't need fancy strategies to tap into that. You can do so by simply investing in a mix of low-cost stock and bond funds. The strategy does have three big advantages: It's cheap, it's unlikely to blow up in your face and, even though there may be occasional setbacks, it works.

Yep, I'm with them here. I'll be a bit more specific: index funds. I won't re-hash all the reasons I like them so much (see Why I Like Index Funds or Best of Free Money Finance: Investment Posts) but there are plenty of good reasons. And, no, they're not glamorous or exciting investments, but they certainly get the job -- which is what you want most when you're facing the menacing retirement monster.

For more on retirement, see these posts from Free Money Finance:

• Don't Take Early Social Security Retirement If You Don't Have To

• A Better Way to Set Your Retirement Number

• How Much Is Enough for Retirement Savings? (How to Set Your Personal Retirement Number)

Comments

[Lisa M]

I'm not certain what the financially-educated would think of this, but my husband and I have decided that part of retirement plan involves keeping our living expenses smaller.

For example, we want to have our home completely paid off. We also want a smaller home - it's less expensive to heat and maintain. We want to have a grid-tied solar/wind generating system that gives us a net zero energy bill at years end. We also want to establish a large garden from which we can grow much of our own produce.

We do have a healthy 401k plan and are moving on to the next step of investing as we have the 401k maxed out to the matching fund limit. But, investments aren't our sole focus for retirement.

-just my two cents worth

[prlinkbiz]

I also set my retirement goals. I don't want to downsize and spend the rest of my life just getting by. Life is too short. It shold be lived and enjoyed. Why not find assets like businesses and real estate that are more sturdy that can throw off passive income and have your money growing at a much higher rate, and keep investing in your "safe" 401k and Funds? Relying on not needing $ or acccepting such small returns seem much more scarey to me than learning to manage the risk of hgher return investments.

[Amber]

What are your thoughts on target retirement funds?