Don't Bank On House Profits To Fund Retirement

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To enjoy a comfortable retirement lifestyle, you will need to build your net worth before you retire. So, you may be interested in knowing that, between 2001 and 2004, the typical household's net worth, adjusted for inflation, grew 1.5 percent, according to a recent Federal Reserve study. The good news is that this figure, while not appearing large, actually represents a sizable gain in family wealth. The not-so-good news, from a retirement savings standpoint, is that much of this increase in wealth came from rising home prices.

The recent Payson Roundup article, "Affordable housing: How did it get this bad?" stated that, "The average price of a home in Payson in 1980 was $64,383, compared to $269,939 in 2006." So, why shouldn't you count on appreciated home prices to form a key pillar of your retirement savings? Won't the value of your home just keep rising?

Not necessarily.

While it's true that housing prices have gone up significantly over the past several years, there is no guarantee that this trend will continue. Housing prices have fallen in the past, and they are likely to do so again.

But just as importantly, even an extended period of rising home prices may not help you as much as you'd think. After all, to profit from your home, you have to sell it and then you have to live somewhere else. And even if you decide to "trade down," you're likely to find that smaller homes have also appreciated quite a bit, so your sale might not net you nearly as much as you'd hope.

To sum up: Your home may provide you with some of the money you will need during retirement, but not all of it. And that's why you need to look beyond your house and into the world of investments. To help pay for a retirement that may last two or three decades, you must invest regularly, at every stage of your life.

Two investment ‘platforms'

Essentially, you have two main investment "platforms": Your employer-sponsored retirement plan and your private investment accounts. And you'll want to pay close attention to both.

For example, if you have a 401(k) plan at work, learn as much as you can about the various investment options available and choose the mix of investments that can potentially provide you with the growth you need, given your individual risk tolerance. Because it offers both tax-deferred earnings and a chance to contribute pre-tax earnings, a 401(k), by its very nature, offers some key advantages in saving for retirement. But you are ultimately responsible for your 401(k) plan's success. So, study up on your choices, contribute as much as you can afford, review your progress and make adjustments as needed.

And while you are contributing to your 401(k) at work, you should also invest steadily in your traditional or Roth IRA. A traditional IRA offers tax-deferred earnings, while a Roth IRA has the potential to grow tax-free, provided you meet certain conditions.

Finally, you will want to build a portfolio containing a diversified mix of stocks, bonds and other securities. Your financial professional can help you make sure these investments work in conjunction with your 401(k) and IRA to help you move toward your retirement goals.

If you aren't already investing consistently, start now. The years fly by, and before you know it, retirement will be looming. When that day arrives, you'll want to be prepared.

-- Scott Flake is a licensed investment representative with the firm of Edward Jones. For more information, call him at 928 468-1470.

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