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If you hope to retire someday, the news has never seemed gloomier. Everywhere you look, you see examples of how many people have no realistic hope of being able to retire with any financial security.
Rather than looking at those warnings as a cue to give up, though, you should use them as a rallying cry to take action. With the right tools, you can improve your retirement prospects and put yourself in a position to feel more secure about your financial situation for the rest of your life.
Storm clouds brewing
With the lead edge of the baby boom generation having reached retirement age, media outlets and researchers are paying a lot more attention to trends and beliefs about retirement. Most of the conclusions that their reports come to aren't very optimistic. Consider the following:
- Employers have turned over responsibility for saving for retirement almost entirely to workers. By replacing traditional pensions with 401(k) plans, employers no longer have to invest retirement-plan money for their workers -- and with mediocre returns for more than a decade, workers face an uphill battle trying to make their money work harder for them.
- For their part, workers aren't taking up that burden. One report showed that nearly half of Americans weren't adding money to a retirement plan at all. A majority of workers say they lack the skills or desire to manage their retirement money on their own.
- Ill-prepared workers are increasingly counting on being able to work indefinitely into their 60s and 70s. That stands in stark contrast to employment trends, in which many workers have had to take early retirement or suffered unexpected long-term layoffs.
- Expenses in retirement look increasingly ominous. Fidelity's annual estimate of lifetime health expenses for retired couples rose to $240,000 this year.
Dealing with all those threats is tough. But the starting point is saving and making the most of your investment opportunities. How you should proceed depends on your individual situation, but some general rules apply to many of those planning for retirement.
Late to the game
If you're 50 or older and haven't started saving for retirement yet, you've got some catching up to do. Fortunately, the IRS gives you higher contribution limits on IRAs and 401(k) retirement plans that can help immensely.
But finding the right mix of investments is challenging. You can't afford the super-aggressive risk levels that younger workers can take on, but you also need solid returns.
One way to split the difference is to go after dividend stocks with substantial payout-growth prospects. Intel (Nasdaq: INTC ) is a good example; with a yield of more than 3%, it rewards shareholders now. But with annual dividend growth of almost 15% over the past five years, those rewards grow every year -- and the company's prospects for expanding into the mobile realm give it a good chance at adding a growth kicker as well. Waste Management (NYSE: WM ) is another good example, with a 4%-plus yield, 9% annual dividend growth, and the huge potential that could come if it expands its U.S.-centric business overseas.
When time's on your side
On the other hand, younger investors can afford to shoot for the moon with their investments. Multibagger returns on just a few of your stock picks can make up for complete losses on others.
Which direction you go to look for high-growth prospects depends on your approach. Some look to find up-and-coming growers early in their life cycles and then climb on for the ride. lululemon athletica (Nasdaq: LULU ) is a good example, with its niche-defining yoga clothing business transforming the retail industry. Another is SolarWinds (NYSE: SWI ) , a misleadingly named company that helps companies manage their information-technology infrastructure. Rather than trying to outsell much larger competitors directly, SolarWinds uses a bottom-up model to entice potential clients with free offerings, only later convincing them to start paying for more services.
Others prefer to look for growth plays whose future has been called into question. For instance, MAKO Surgical (Nasdaq: MAKO ) has extended robotic surgery to popular joint replacement procedures, but its latest earnings sent the stock down 35% as the company cut guidance on sales. Some fear that the modest reduction in projected system sales is just the beginning of a longer-term trend. If you think the growth story is over at MAKO, then that haircut is completely warranted -- but if not, then now's a great time to look into the company.
Retire your way
It's easy to feel like you'll never be able to retire. But the longer you have until retirement, the easier it is to improve your finances and put yourself in a position to retire your way.
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