According to a survey conducted by the Savings Education Council last year, 24% of all workers were not confident that they were prepared to retire comfortably. Upon retirement we would like to maintain a certain level of income and lifestyle such as that established in the prime of our earning career. Through proper planning this goal can be achieved and then some. I am going to establish the need for investments/ savings through the life-cycle model of consumption. I will then walk through standard retirement plans showing that additional funding will likely be needed for the upper-middle class, leading to stock and bond investments, risk tolerance of an individual investor, how that affects diversity and rates of return. On average Americans save approximately 5% of their earnings. This is the lowest among industrialized countries; Japan saves on average 24%, they are the highest savers. The US saves so little in part because of the availability and ease of credit, the financial system; as well as an effective Social Security system. However, the US is changing, to depend on todays Social Security for tomorrow alone is a risky venture to say the least.Throughout ones career their earning levels will fluctuate; the highest level of earnings is most likely achieved around middle age or mid-career. It is at this time most Americans begin to think about retirement and savings. The life-cycle model of consumption , Table 1 shows that we desire a constant level of consumption, represented by the straight red line. We, therefore, will go into debt when we are young, repaying the debt and begin saving in middle age, and dissave in retirement.Table 1. Life-Cycle Model of Consumption While I personally believe that savings should being with the first paycheck, I am realistic in acknowledging that most people do not begin to even think about saving or investing until they have reached a certain level of comfort in thei...
