Spokane Journal of Business

Retirement expectations, reality often don’t align

Dollar-cost averaging can increase savings in long-term strategy

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Will your retirement dreams match your reality?

That’s perhaps the most critical question to ask people who are currently retired. Is your retirement what you expected, or is it something else?

For more than 30 years, the Employee Benefit Research Institute has conducted the Retirement Confidence Survey, which gauges the views and attitudes of working-age and retired Americans regarding retirement and their preparations for retirement.

According to the 2021 survey, only 33% of workers expect Social Security to be a significant source of retirement income. But, in reality, 62% of retirees say it’s a significant source.

Further, more than 50% of workers believe that workplace retirement savings plans will be a significant source of retirement income. But the 2021 survey found that workplace plans are an essential source for only 20% of retirees.

Are you surprised? I’m not. These numbers are consistent year after year.

For most, retirement is the “next chapter” in life. Your finances must support your retirement vision, so there are no surprises when it’s your turn.

As a Spokane financial adviser, I’ve seen that it is never too late to change your retirement path. If you don’t know where you are going, chances are you will end up somewhere else. Social Security most likely won’t be enough to cover all of your baseline living expenses, and that is why it is critical that you proactively save to supplement your Social Security.

One way to increase your retirement funds is to start dollar-cost averaging now. What is dollar-cost averaging, and how does it work?

In the financial world, dollar-cost averaging refers to systematically saving a specific amount into an investment.

An example would be to transfer $100 a month from your checking account into an investment such as a mutual fund at the same time every month. 

If you can systematically invest in an investment that fluctuates in value, you buy your asset when your money is received.

Most public investment prices, such as stocks and bonds, are based on supply and demand for that security. The cost of those securities will bounce around throughout the day while the exchange matches the orders to sell and buy.

By systematically accumulating shares each month with your investment, you will collect more when the market dips, and it is like buying something on sale. If you buy something at $10 a share and the price drops to $5 for a month, you will buy twice as many shares due to the price dip.

Price fluctuation is what makes dollar-cost averaging so effective over time. Think of it as buying something you will need for the future. And if you can buy it at a discount, even better, your investment will go farther when the price dips.

It’s human nature to want to let your investments ride in a “bull market” and it isn’t easy to put assets to work after a significant pullback. Dollar-cost averaging is an excellent solution to determine when to enter or exit the market.

How to start dollar-cost averaging:

•Participate in your employer’s retirement plan. Your employer will deduct funds from your paycheck and send them to your retirement account.

•Set up a Roth IRA if you qualify and transfer funds monthly. For 2021, you can contribute $6,000 a year if you are under age 50, and $7,000 if you are 50 or older.

•Set up an investment program through your financial adviser or a mutual fund company directly. It’s easy, efficient, and chances are you won’t even miss those funds.

•Buy some of your favorite stock that pays dividends and sign up for a DRIP—a dividend reinvestment plan, which allows investors to reinvest their cash dividend into additional shares of the underlying stock on the dividend payment date.

You will not benefit from dollar-cost averaging if you don’t take action. The most significant threat you will face in your retirement is rising costs due to inflation. Having different buckets of savings and creating various income sources can help you navigate retirement so you can enjoy it without stressing about where the money is going to come from.

Sarah Carlson is owner and founder of Fulcrum Financial Group, of Spokane. She can be reached at 509.747.2075.

Sarah Carlson
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Sarah Carlson is the owner and founder of Fulcrum Financial Group, of Spokane. She can be reached at 509.747.2075.

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