Retirement Planning: Index Investing
Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh
A contemporary consideration for modern-day retirement planning is the idea of longevity risk. Due to longer life expectancies and advances in modern medicine, people are living longer than ever. In some instances, they are outliving benefits designed to help them survive and thrive during retirement. Corporate re-structuring has resulted in fewer employer-matched investment funds and fewer generous benefits packages. Many types of previously held financial entitlements are no longer in existence, and the burden of responsibility has shifted from employer to employee.
One of the biggest examples of the detrimental effects of longevity risk can be found within the Social Security system. For the first time in August 2010, Social Security paid out more in benefits than it took in, putting it on a precarious path to dismantle the lives and livelihoods of retirees all over the nation. The biggest lesson to learn from this example is that you are ultimately responsible for your own financial welfare. That is why it is important to keep God first in everything and continually seek Him as your source. “But seek first the kingdom of God and his righteousness, and all these things will be added to you,” (Matthew 6:33 ESV).
Furthermore, no matter how young or old you are when you start the planning process, you must not leave your future up to chance or rely solely on the goodwill and generosity of others. A secure retirement does not consist of a plan based solely on:
- Adult children – who may or may not be willing or able to financially assist or properly care for you as you advance in age;
- Social Security – a government fund which may or may not still be around and able to reliably pay out worker benefits due to the increasing number of dependent retirees, economic recession, and inflation costs;
- Winning the lottery – a one-in-a-million shot in the dark at best, which the Bible speaks against as gambling. It also encourages gain from others’ loss and is contrary to the clearly stated scriptures about work, labor, and reward.
The best advice we can share is to keep your options open when considering the best avenues for retirement planning. As we’ve previously mentioned, Index Investing (see Chapter 10 – Your Financial Plan is Personal) is a powerful way of investing for a retirement fund. History books and online search engines will clearly demonstrate that over time Index Investing clearly out-performs most money manager accounts. The reason more attention isn’t given to this type of investment fund is because it isn’t profitable for the money managers on Wall Street. Because Index Investing just follows an index (such as the S&P 500), there is no need for high-dollar money managers to buy or sell stock. Of course, mutual funds and active money management serve a purpose for more aggressive growth with a higher risk tolerance; however, for long-term retirement planning and nest-egg building, Index Investing in a very good option.