The rate of return on your retirement plan investments could have a dramatic effect on your account balance at retirement.
Do you know the rate of investment return on your retirement plan account? You may want to consider whether choosing some investment options with a potential for higher returns might be appropriate for your overall retirement savings strategy.
Find Your Personal Comfort Zone.
Generally, investments that offer the highest potential for return have a high potential for risk. Investments that are the most stable and offer the lowest risk also offer a lower potential return. That's where risk tolerance comes in. It's up to you to decide how much risk you're willing to accept for the possibility of larger returns. Just be aware that lower returns could pose a different risk—savings that won't keep pace with inflation. All investments possess some element of risk, including the possible loss of principal.
Let's assume a 30-year-old with an annual salary of $25,000 contributes 5% (about $24 a week) to her employer's retirement plan. Here's how those weekly contributions could add up at hypothetical 4%, 6%, 8%, and 10% annual rates of return.
In this hypothetical scenario, the same annual contribution amount generated over $150,000 more with a return of 10% than with 4% over 30 years. That's quite a difference. So, while selecting investments with the potential for higher returns may be right for you, don't forget that there's also the potential for much greater losses.
Keep the Big Picture in Mind.
When choosing your investment options, you'll want to carefully consider your retirement savings goals and your time line until retirement as well as your personal tolerance for risk. By balancing these factors, you can explore the potential for higher returns without leaving your comfort zone. For help with figuring out your personal investing style, take our online risk tolerance quiz. You may also want to consult with a financial professional before making your decision.
For more information about choosing the investment options in your plan, contact your benefits administrator or call your Hartford representative.