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What’s the Right Rate of Return for Your Retirement Savings?


With the economy seemingly on a roller coaster since the pandemic began and the stock market following suit, you may be wondering if you’re achieving the right level of growth for your portfolio to set you up for a solid financial future. But the answer can be confusing.

A great single year doesn’t mean you’re set for the next 30. And even if you generate a good amount of growth now, it may not guarantee the long-term gains you desire.

To get the rate of return you need, you must be able to adjust. Flexibility can help you attain your goals.

Caution: Nominal Rate Does Not Equal Rate of Return

First, make sure you understand the numbers. Your nominal rate of return includes income posted by investments before you take out admin fees and taxes or account for inflation. Make sure you don’t mistake your nominal rate for your real rate of return, otherwise you’re dealing with an inflated number.

This can actually make a big difference. Many funds charge management fees between 0.2% and 5%, for instance, and the inflation rate is around 3%. So if you have a nominal rate of return of 8%, the reality is actually about half that when you subtract those two things, and that’s not even accounting for taxes, if you don’t have a Roth account.

What Determines Your Rate of Return?

A number of things play into how much of a return you get from your retirement, including:

· Your risk tolerance: You get high returns when you take high risks, but if you’re closer to retirement, it isn’t wise to gamble. Lower your risks as you get older, when it becomes tougher to make up early losses.

· Your age: If you retired in 2022, for instance, you did so in a year when the S&P 500 was down double-digit percentages, as opposed to retiring a few years earlier, when the rate of return was higher and you could recover earlier losses.

· Your chosen investments: Most people choose to diversify their assets so that they aren’t just relying on one thing, but that also means you see different rates of return depending on what you choose. Your options include stocks, bonds, mutual funds, annuities, certificates of deposit, real estate investment trusts and more.

Plan for Many Scenarios

The best thing you can do for your future is to plan ahead, and that means calculating for different financial outcomes since no future investments are guaranteed. If you need assistance, reach out to Jay to set up a time to discuss your dreams and goals.

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