JMU expert highlights importance of investments in retirement planning

Harrisonburg, Virginia – The number one rule when it comes to personal finance is to spend less than you earn and invest the difference. That’s according to Jason Fink, finance professor at James Madison University, which this week is joining thousands of participating organizations in supporting America Saves Week, a week dedicated to encouraging personal financial health. 

“The more you can invest today — and sometimes it is hard to get the financial breathing room to do so, the more resources you will have to address difficulties tomorrow. If you fail to invest today, in the future you’ll never have more resources than you can produce with your labor at that moment.” 

Recently Fink has been working with a private wealth company in Harrisonburg to research common client and advisor needs relating to the state of the market and investments. He has published papers answering questions like, “Are commodities a viable asset class to include in client portfolios?” or, “What sorts of variables can we use to forecast asset-class returns?” 

“The shift of risk from companies to retirees via the pension system has made these topics relevant to almost everyone in American society, whether they realize it or not,” Fink said. 

Over the last few decades, Fink notes that pensions, which pay a fixed amount to retirees (defined-benefit pensions), have been mostly replaced by pensions in which participants contribute a fixed amount and then invest the assets on their own (defined-contribution pensions, such as 401(k)s and 403(b)s). 

“This change has substantially shifted the risk of financing retirement from employers to employees,” says Fink.  

There is research that demonstrates that for a typical retirement, it is sustainable for a retiree to pull about 4% from their retirement portfolio in the first year of retirement, and then adjust that amount by inflation each year, Fink said.  

“If the retiree pulls more than that, there is a chance they will outlive their money, which is a pretty negative outcome,” he said. 

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Read the original article by Jess Nickels.