Perspectives

Retirement Readiness: How to Invest

Featuring Kaitlin Hendrix, CFA, Asset Allocation Research Director and Vice President

Mar 01, 2019

Currency

USD

Topic

Most people want to maintain their current standard of living after they retire. That's why they are saving and investing to support their future spending. But rather than focusing on how much wealth to accumulate, you should think about how much retirement income your portfolio can support. This can lead to better retirement planning and change how you invest. An income focused approach also helps you manage the risks that can affect retirement income, like interest rates, inflation, and stock market downturns. Let's assume you are about to retire and have saved $500000. How much income this provides depends a lot on interest rates and inflation. For example, if interest rates are 5% and inflation is 2%, your 500000 translates into about $28000 of retirement income per year over 25 years. But if interest rates fall to 4%, you can only afford about $25000 in income per year. And if inflation rises to 3%, your retirement income would be even less, a 19% drop altogether. So how can an income focused solution address these risks? Here's how. In your early working years, you invest mostly in a diversified mix of global stocks and bonds. These are designed to grow retirement wealth, which you can draw income from later. As you get closer to retirement, your focus shifts from income growth to income risk management. As you reduce exposure to equities and invest more in bonds and inflation protected securities. These investments are designed to reduce the impact of inflation, interest rate movements or a market downturn on expected retirement income. Dimensional believes this investment approach helps you reduce the uncertainty around future retirement income. Resulting in more effective planning and a greater chance of maintaining your standard of living after you retire.

Beyond determining how much money to save, it’s useful to think about retirement in terms of how much income you'll need after you stop working. We created the Retirement Readiness series to help you set and achieve your retirement goals.

Disclosures

FOR PROFESSIONAL USE ONLY. NOT FOR USE WITH THE PUBLIC OR RETAIL INVESTORS.

The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional Ireland and Dimensional UK, as applicable (each an "Issuing Entity", as the context requires), to be reliable and the Issuing Entity has reasonable grounds to believe that all factual information herein is true as at the date of this document. It does not constitute investment advice, recommendation or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorised reproduction or transmitting of this material is strictly prohibited. The Issuing Entity does not accept responsibility for loss arising from the use of the information contained herein.

IF YOU ARE A RETAIL INVESTOR IN THE UK, IRELAND, GERMANY, AUSTRIA OR THE NETHERLANDS, THIS DOCUMENT HAS BEEN PROVIDED TO YOU BY YOUR FINANCIAL ADVISER, WHO CAN HELP EXPLAIN ITS CONTENTS.

WHERE ISSUED BY DIMENSIONAL IRELAND LIMITED
Issued by Dimensional Ireland Limited (Dimensional Ireland), with registered office 33 Sir John Rogerson’s Quay, Dublin 2, D02 XK09, Ireland. Dimensional Ireland is regulated by the Central Bank of Ireland (Registration No. C185067).

WHERE ISSUED BY DIMENSIONAL FUND ADVISORS LTD.
Issued by Dimensional Fund Advisors Ltd. (Dimensional UK), 20 Triton Street, Regent’s Place, London, NW1 3BF. Company Number 02569601. Dimensional UK is authorised and regulated by the Financial Conduct Authority (FCA) - Firm Reference No. 150100.

Neither DIL nor DFAL as applicable, (each an “Issuing Entity”, as the context requires) give financial advice. You are responsible for deciding whether an investment is suitable for your personal circumstances, and we recommend that a financial advisor helps you with that decision. Information and opinions presented in this material have been obtained or derived from sources believed by the Issuing Entity to be reliable and the Issuing Entity has reasonable grounds to believe that all factual information herein is true as at the date of this document.

The Issuing Entity issues information and materials in English and may also issue information and materials in certain other languages. The recipients continued acceptance of information and materials from the Issuing Entity will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.

The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or, representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by the Issuing Entity to be reliable and the Issuing Entity has reasonable grounds to believe that all factual information herein is true as at the date of this document. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorised reproduction or transmitting of this material is strictly prohibited. The Issuing Entity does not accept responsibility for loss arising from the use of the information contained herein.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd, Dimensional Ireland Limited, Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

NOTICE TO INVESTORS IN SWITZERLAND: This is an advertising document.

UNITED STATES: This information is provided for registered investment advisors and institutional investors and is not intended for public use. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

CANADA: This document is issued by Dimensional Fund Advisors Canada ULC for registered investment advisors, dealers, and institutional investors and is not intended for public use. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. The other Dimensional entities referenced herein are not registered resident investment fund managers or portfolio managers in Canada.

AUSTRALIA: This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and the target market determination (TMD) that has been made for each financial product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.

NEW ZEALAND: This material is issued by DFA Australia Limited (incorporated in Australia, AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. This material does not give any recommendation or opinion to acquire any financial product or any financial advice product, and is not financial advice to you or any other person. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and for the Dimensional Wholesale Trusts the target market determination (TMD) that has been made for each financial product or financial advice product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.

RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.