MONEY asset allocation

How Much Stock Is Too Much? Here’s a Quick Rule of Thumb

Investing illustration
Robert A. Di Ieso, Jr.

Q: My wife and I are 54 years old and we still have about 94% of our retirement savings in a variety of stock mutual funds and ETFs. Should I begin moving some of that to bond funds? — Gary Wirth, Pittsburgh

A: Assuming you and your wife are still more than a decade away from retirement, you’ll want to keep the bulk of your investments in stock funds and ETFs.

Even so, your 94% allocation to equities is on the high side at this stage of the game, says Mitch Tuchman, managing director of Rebalance IRA, a national independent investment advisory service that specializes in asset allocation.

At this point, while you’re still working and accumulating savings, adding bonds to your portfolio isn’t as much about earning income as it is giving your investments some ballast in case the stock market goes topsy turvy — as it did briefly in late September and early October.

The question then isn’t if you need some additional bond exposure, but how much more?

Most experts, including Tuchman, do not recommend relying on the old rule of thumb that says the percentage of your portfolio in fixed income should equal your age. According to that old standard, 54-year-olds ought to keep 54% of their portfolios in bonds while holding a minority of their money in equities.

That rule doesn’t apply for a couple of reasons, says Tuchman. First, people are working longer and living longer. Second, you have to consider the environment you’re in. With bond yields as low as they are, for as long as they’ve been, there is a real risk interest rates will go up.

Why is that bad?

Market interest rates move in the opposite direction of bond prices. When rates rise, prices on existing bonds in a portfolio will likely go down. In theory, this means you could lose money in bonds when this shift takes place.

Your target allocation to bonds will also depend on other factors, such as how long you and your wife plan to keep working and your emotional tolerance for market swings. If you lose sleep and make rash choices (i.e. move to cash) when the market dips, you should probably own a larger helping of bonds.

With all that said, Tuchman suggests a good target for you and your wife is about 15% in bonds. He recommends divvying that up among high-quality corporate bond funds, high-yield funds, and emerging market debt funds. “Those groups still pay a reasonable amount of interest and, for various reasons, are a better hedge in a rising rate environment,” he says.

Having 15% of your portfolio in bonds may still seem like an aggressive stance.

Keep in mind, though, that Tuchman is not saying that the rest of your investments belong in equities.

In addition to the bond holdings, Tuchman says it’s also a good idea to allocate 5% to 10% of your total portfolio to real estate — in the form of real estate investment trusts — and another 5% to 10% to dividend-paying stocks, which are considered more conservative than other types of equities.

As for the remaining 70% or so of your portfolio, make sure that’s well diversified among large-cap stocks, small-cap U.S. shares, foreign equities, and emerging-market stocks.

This mix should get you through the next several years, says Tuchman, who at 58 adheres to a similar strategy in his own portfolio.

Read more on asset allocation:

What is the right mix of stocks and bonds for me?

MONEY fix my mix

Get Free Help with Your Investing Challenges

Pile of money
B.A.E. Inc.—Alamy

MONEY is looking for people who are willing to share the details of their portfolio in exchange for a free workup with a financial planner.

Has the volatile market caused you to flee stocks for the security of cash and bonds?

Are you close to 100% in stocks but thinking now it might be time to dial back?

Would you like to rework your investments to generate more income from dividends and bonds?

If so, we’d like to help.

For an upcoming issue, MONEY is looking for people who’d be willing to share their portfolio and financial situation in the magazine, in exchange for having a top-shelf financial planner examine their investments from top to bottom and come up with a full and personalized financial plan.

You must be comfortable sharing details of your personal and financial life (including your real names) and being photographed for the story.

If interested, please fill out the form below. Please tell us a little about your investment challenges, and also include a few details about your family’s finances, including income, approximate savings, and debts. All of this information will be kept confidential until we talk and you agree to appear in the story.

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MONEY financial advice

The Downside of Financial Jargon

141104_ADV_Jargon
Robert Nicholas—Getty Images

If you focus too much on charts, graphs, and asset allocation, you can end up overlooking what's really important about someone's finances.

Sometimes our clients’ simplest questions are the ones that we overlook.

Not too long ago I started prepping for an annual meeting with one of our clients. As is the case with most financial planners, our process involved collecting data from various sources so that we would be prepared to discuss not only our annual agenda items but also any questions our client might raise about her overall financial plan.

Our annual meetings are an opportunity for us to discuss with our clients their life changes, re-focus their goals, and address any other external events that might have an impact on their overall plan. So we made sure we were ready to discuss portfolio performance and allocation, even if we didn’t intend to spend much of the meeting going over performance. We also made sure to review various benchmarks, mutual fund performance reports, and any other information that might bear on our client’s ability to achieve her goals. Suffice it to say, I felt it better to be overprepared than underprepared.

Meeting day arrived, and I was ready. I glided through the agenda items with my client while highlighting the areas that I thought needed addressing. Of course, I showed her colorful pie charts in order to highlight her portfolio’s diversification and performance. As I concluded the agenda, I noted that since there were no major life changes, I didn’t see a need to alter the portfolio.

I thought our hour-long meeting had gone well — until, that is, my client looked at me and said, “Frank, I just want to know if I’ll have enough money to continue living my current lifestyle.”

I was floored. All of my prepping for the meeting was to highlight that she was on track and that everything was moving along as we had planned. The problem, however, was that the information was in a language that made the answer to her question obvious to me but not to her. My charts looked pretty to me, but didn’t address her question.

I thanked her for her question, and I made a commitment to change how I would address that in future meetings. In other words, I would make sure we discussed her current spending as well as other aspects of her financial life within the context of how her lifestyle might be affected.

After our meeting, I continued to ponder her question, because she was right. My meeting agenda was filled with language and jargon that I understood but not my client.

I reflected on whether we as an industry overcomplicate concepts that can be easily communicated in a way that more directly addresses our clients’ basic fears. The answer for me was to question my assumptions about my client communications in general and re-evaluate how I would communicate moving forward with all my clients. I made a commitment to listen more for their fears and address them more directly — free of industry jargon whenever possible. I would not assume my spreadsheets and pie charts said it all. In other words, I would keep it simple.

———–

Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY stocks

How Arnold Palmer and Yo-Yos Can Help Your Finances

Arnold Palmer, golfer
Meeting your idol on the golf course can end up putting your mind at ease. Jim Young—Reuters

When stocks jump around, ease your worries by distracting yourself and taking the long view.

One of my newer clients, concerned about the latest stock market drop, called me earlier this month. After catching up briefly, she began describing the unsettling nature of the market volatility she was hearing on the news. She was feeling fearful about losing more of her nest egg, since she’s in her mid-60s, has recently retired, and wouldn’t be able to make the money back up by working.

No doubt many other financial advisers have received calls like this in recent weeks.

I responded by validating her thoughts, since our emotions play dirty tricks on us when investing. We all want to sell when fear is strong and buy when things have been hot.

We next spent some time discussing her longer-term financial plan and the idea that when stock prices fall we are then positioned for better future returns going forward.

It was at this point that the conversation went off on a tangent. Earlier this year, while planning for her retirement, we budgeted an annual allotment for golf. My client was planning to join a Thursday morning women’s golfing group and play at different courses around the region.

When I asked her how that was going, she started to gush about the experience she had at the U.S. Open golf tournament over the summer in Pinehurst, N.C. One of her friends had received corporate hospitality tickets, so they were able to access the clubhouse. While having a drink on the patio, she spotted her childhood idol, Arnold Palmer. She immediately walked up to him and asked for a picture, to which he agreed. While chuckling she said, “It took everything I had not to lay one on his cheek during the picture.” She said she hadn’t felt that much like a schoolgirl, since, well, she was a schoolgirl.

By the time she finished, and we had both stopped laughing, she took a breath and said, “Now what were we talking about?”

A saying attributed to Milton Berle is, “Laughter is an instant vacation.” It’s true. Laughter temporarily helps to take the focus off of our fear. But a falling stock market is no laughing matter.

It’s easy to get swept up in the fear that comes from stock market drops, especially after a five-and-a-half year period of gains. In the moment, the fear takes over, making us feel like we should do something to stop our cascading portfolio values.

The key to successfully overcoming this fear is to have expectations aligned before the drop happens. To help our clients truly internalize this concept, we walk through a set of steps to help them digest what a loss may feel like.

  • We begin with a look at the wide range of historical stock return outcomes possible over a one-year period compared to a 10-year period. This helps the client to see the random nature of one-year results and the increasing probability of higher returns for longer-term periods. We often compare it to a person walking up a set of stairs while using a yo-yo. The yo-yo will move up and down with each step but ultimately will make it to the top of the stairs.
  • Reviewing the client’s multi-year plan also calms the urgency to sell when stock prices dip. Because as prices fall, future return assumptions increase. Focusing on hitting income and spending targets, which the client can control, shifts the focus away from the fear. Circling back to important goals or memories the client mentioned when establishing the plan adds perspective and serves as a reminder of why a plan was created in the first place.
  • Running hypothetical examples of a loss in dollars, not percentages, helps to lessen the shock value when it actually becomes reality. Instead, reminding clients (and ourselves) to associate losses with opportunity in the good times makes us better prepared to make stock purchases when prices have fallen. Additionally, reflecting on historical gains that have occurred after certain percentages of losses can build confidence for when things seem extremely bleak.

We all face uncertainty when dealing with decisions surrounding our money. We also all know that stock market drops are inevitable. Removing the element of surprise allows us to be better equipped when the drops come along. Losses will never feel instinctively good, but seeing opportunity instead of being consumed by anxiety will help.

———-

Smith is a certified financial planner, partner, and adviser with Financial Symmetry, a fee-only financial planning and invesment management firm in Raleigh, N.C. He enjoys helping people do more things they enjoy. His biggest priority is that of a husband and a dad to the three lovely ladies in his life. He is an active member of NAPFA, FPA and a proud graduate of North Carolina State University.

MONEY risk

The Crucial Investing Advice You Need Right Now

glass of water balanced on see-saw
Martin Barraud—Getty Images

When the stock market is near record highs, it's more important than ever to think about risk.

Don’t let history repeat itself.

You’ve heard that phrase before, likely as a warning to those who might be traveling down the same dangerous path as those before them. But it’s also currently the most important piece of advice I offer to clients.

Recently, I’ve been helping clients rebalance portfolios that have become stock-heavy due to the bull market that’s taken the S&P 500 up 194% since March 2009. With the bull now more than five years long and memories of the financial crisis starting to fade, I’m finding that investors aren’t exactly excited about reducing their stock allocations.

One of my duties as a financial adviser is to encourage my clients to rebalance their portfolios to the levels that we agreed made sense for them given their risk tolerance. In August, however, the S&P 500 topped 2,000 for the first time, giving investors a new boost of confidence.

And although seeing the market at new highs is exciting, let’s not forget that markets can go the other way too. On October 19, 1987, the Dow fell 22.6% in just one day. Applied to current levels, a 22.6% drop would be 3,801 points. During the financial crisis, from October 11, 2007 through March 6, 2009, stocks fell 57%, which would be 9,586 points today. I don’t expect anything that drastic to happen anytime soon, but investors need to remember that bear markets — declines of 20% or more — historically have occurred on average every four-and-a-half to five years.

So even though I’m a big believer in holding stocks for the long run, lately I’ve been making a point to show my clients how portfolios like theirs would’ve performed during previous bear markets, including the crash of 1987 and the financial crisis. I help them understand not just stocks’ growth potential but also the risks associated with achieving that growth.

At times like this I talk about risk for two reasons. First, focusing on risk prevents clients from being caught up in the moment and making choices that they may regret. Second, risk is still very much a reality. Investors are more optimistic these days, but this optimism allows them to be tempted to abandon their rebalancing strategies in order to maintain or increase their exposure to the aggressive side of their portfolios, which reduces the downside protection that rebalancing back to bonds and cash may offer.

No matter how the market performs, I reinforce investment discipline by coaching clients to stick with their investment plans. Past performance is not a guarantee of future returns, but a good way to cut the odds of repeating the history of buying high and later selling low is to rebalance in a disciplined way. For many investors, that could mean reducing stock exposure and adding to bonds — especially at times like this, when our impulse is to do just the opposite.

———-

David A. Schneider, CFP, is the principal of Schneider Wealth Strategies, a financial services firm based in New York City. Schneider has more than 25 years of experience in the wealth management industry and specializes in the planning needs of business owners, professionals, and affluent individuals. He is a registered representative of Cambridge Investment Research and an investment adviser representative of Cambridge Investment Research Advisors. Schneider is also a member of the Financial Planning Association.

Note: The S&P 500 and the Dow are stock market indices containing the stocks of American large-cap corporations. An index can’t be invested into directly. Asset allocation does not guarantee a profit or protection against loss.

MONEY 401(k)s

Why Your Retirement Fund Is Riskier Than You Thought

Your 401(k) target-date fund may own a lot more stocks than it did before, as fund groups got a lot more aggressive. Too bad it happened just in time for the recent market downturn.

In changes that have raised the potential investment risks in many 401(k) retirement accounts, several major fund companies are increasing the stock allocation of their target-date funds, which are used by many of those with such plans.

BlackRock Inc, Fidelity Investments and Pacific Investment Management Co—all firms that have seen returns in their target-date funds lagging competitors—have made adjustments in the past year so that 401(k) plan participants, particularly those who are younger to middle age, are more invested in equities. In some cases employees who are in their 40s now find themselves in funds that are 94% allocated into stocks, up more than 10 percentage points.

The changes have prompted concerns from consultants and analysts who worry that the fund managers are raising the risks too high for 401(k) investors as they seek higher returns, perhaps as a way to boost their own profiles against rivals.

This anxiety could grow if the recent decline in the U.S. stock market—the S&P 500 is down 4.5% since reaching an all-time high in mid-September and dropped more than 2% on Thursday—gains momentum. On the other hand, the increased bets on equities can be seen as a vote of confidence in the bull market, and are also a reflection of expectations of low returns from bonds in the next few years if interest rates climb.

“The shared characteristic these funds have is they have not been doing so well since 2008,” said Janet Yang, a fund analyst at Morningstar. “The question is if the markets had gone down, would they have made these changes?”

For their part, executives at these firms say the changes are based on optimistic long-term forecasts for equities, lowered expectations for bond market returns and a better understanding of how much investors, particularly younger ones, rely on these funds as their primary retirement savings vehicle.

Target-date funds contain a mix of assets, such as stocks and bonds and real estate, and automatically adjust that mix to be less risky as the target maturity date of the fund approaches. The idea is that retirement savers can choose a target-date fund that lines up with their own expected retirement year and then not have to worry about managing their money.

These funds have increasing significance for retirement savers, because employers can and do automatically invest workers’ savings in target-date funds, though the workers can opt out. Some 41% of plan participants invest in these funds, up from 20% five years ago, according to the SPARK Institute, a Washington DC-based lobbyist for the retirement plan industry.

Nevertheless, the recent tilt towards heavier equity holdings raises questions about whether workers are entrusting professional money managers who might end up buying equities at or near market highs—the S&P is up 189% since March 2009.

“Our concern is that this is happening after a pretty good run in the equity market,” said Lori Lucas, defined contribution practice leader at Callan Associates, a San Francisco-based consultant to institutional investors. “If it’s a reaction to the fact that some target-date funds haven’t been competitive then it is a concern.”

A more aggressive approach has worked for some funds in recent years.

The target-date fund families of BlackRock, Fidelity and Pimco have performed among the bottom half of their peers over the last three- and five-year periods, according to Morningstar. Meanwhile, more aggressive target-date fund families, like those managed by The Vanguard Group, T. Rowe Price and Capital Research & Management, ranked among the top half of their peers.

As of June 30, BlackRock’s three-year return for its 2050 fund was 10.6%, according to Morningstar, compared with 10.16% for Fidelity’s similar fund and 7.14% for Pimco’s comparable fund. Meanwhile Capital Research’s 2050 fund returned 13.27% and Vanguard’s fund returned 12.26% for the same period.

Furthermore, with average expenses of 0.85% per year, these funds charge more than the 0.7% in fees levied by the typical actively managed balanced fund, according to Morningstar. The firms’ pitch is that investors are paying more for peace of mind and a set-it-and-forget it approach to managing their retirement money. Workers willing to make their own mix of indexed stock and bond funds could pay considerably less. The average expense ratio for an equity index fund is 0.13% and 0.12% for a bond index fund.

“There is some kind of expectation that we are making these changes because of the equity markets or because of what competitors are doing and that is incorrect,” said Chip Castille, head of BlackRock’s U.S. retirement group.

BlackRock decided to make its changes after a four-year research project cast new light on how younger workers look at their plans. Previously, BlackRock’s funds were focused on making sure that investors had enough at retirement. But given that employees’ wages tend to be flat or go up in value slowly, like a bond, BlackRock wanted to make sure that the target-date funds were designed to provide greater returns during the course of employees’ lifetimes, Castille said.

That, along with the firm’s positive 10-year forecast for equities, resulted in the changes, he said.

With the BlackRock changes, which take effect next month, 401(k) participants with 25 years left until retirement will see their equity allocation jump to 94% from 78%. Investors at retirement age saw their equities allocation jump to 40% from 38%.

Executives at the firms note that the increases in equities all fit within the age appropriate risk for the investors, and that those investors close to or at retirement are seeing a very small bump in their equities weightings.

Also they note that they believe the changes will combat risks of not having enough money at retirement due to inflation and also address concerns that as people live longer they will need more in retirement.

Fidelity made its changes in January after it revamped its capital markets forecasts, which it revisits annually, said Mathew Jensen, the firm’s director of target-date strategies.

Specifically, Fidelity has lowered its forecasts for bond returns from 4% a year to 1% to 2 %, not including inflation. That along, with internal research that showed that younger workers were not saving enough, led to the decision.

“None of our work was saying ‘hey the equity markets did well, we should be in equities,” Jensen said. “It was about if we have a dollar today, how do we want to put it to work based on what our capital markets assumptions are telling us.”

Now an investor in Fidelity’s 2020 fund has 62% invested in equities, compared with 55% previously, while an investor near or at retirement is 24% in equities, up from 20%.

Pimco raised the equity allocation in its target date funds late last year by 5 percentage points for some funds and 7.5 percentage points for others. The equity allocation for those at retirement is now 20%, up from 15%, while those investors planning to retire in 2050 saw their equity allocation jump to 62.5% up from 55%.

“The decision was supported by our view that the global macro environment had become more stable post the financial crisis,” said John Miller, head of U.S. retirement at Pimco, in an e-mailed statement.

MONEY retirement age

How to Know When It’s Time to Retire

Birthday candles
Fuse—Getty Images

I’ve long argued that one’s quality of life should be a principal factor in deciding when to retire. At the same time, however, financial considerations can’t be ignored. With this in mind, here are three rules of thumb to help you decide whether you’ve reached the perfect age to retire.

1. Have you saved enough money?

The “multiply by-25″ rule is a popular tool that retirement experts encourage people to use to estimate whether they’ve saved enough money to stop working and, at least hopefully, begin a life of leisure.

Here’s how it works: Multiply your desired annual income in retirement, less projected annual Social Security benefits, by 25. If your savings are greater than that, then you’re in good shape. If not, then you may not be financially ready to retire.

For example, let’s say that Bob and Mary Jane estimate they’ll spend $40,000 a year in retirement. Using the rule of 25, they’ll need savings of $1 million.

A slightly different iteration of this is the “multiply by-300″ rule. This is the same thing, but it focuses on months instead of years — that is, take your average monthly expenditures, minus your monthly Social Security check, and multiply that by 300.

If your savings are greater than that, then you’re all set. If not, then you might want to continue working for a few more years.

2. Will you have enough income?

This question is related to the first one, but it attacks the issue from a slightly different angle. As such, it also has its own rule of thumb: the 4% rule.

This rule holds that you can safely withdraw 4% from your portfolio every year and still be confident it will last through retirement. Thus, to determine if you’ll have enough income in retirement, multiply your portfolio by 4% and then add in your projected annual Social Security benefits — to learn one potential problem with this rule, click here.

If the sum of these two numbers is enough to cover your expenses, then you’re ready to retire. If not, then it may behoove you to put off retirement for a while longer, as doing so should allow your portfolio to continue growing. It will also give your Social Security benefits time to accrue delayed retirement credits.

3. Is your portfolio properly allocated?

Finally, determining if you’re ready to retire isn’t just about how much you’ve saved, it’s also about how your savings are allocated into various asset classes — namely, stocks and bonds.

To be ready for retirement, you want to make sure that your assets are invested in as safe of a way as possible. To do so, it’s smart to steer your portfolio increasingly toward fixed-income investments like bonds as you approach your desired retirement age.

Experts use the following rule to determine the proper allocation: “The percentage of your portfolio invested in bonds should equal your age.” Thus, if you’re 60 years old, then 60% of your portfolio should be in bonds and 40% in stocks. If you’re 55, then the split is 55% to 45%, respectively.

While this may seem like it has less to do with the timing of retirement than the former two rules, the reality is that it’s of equal importance. As my colleague Morgan Housel has discussed in the past, one of investors’ biggest mistakes is to underestimate the volatility in the stock market. According to Morgan’s research, stocks fall by an average of 10% once every 11 months.

Suffice it to say, a drop of this magnitude would have a material impact on both of the preceding rules, as a 10% decline in your stock holdings would equate to a much smaller income under the 4% rule and, as a corollary, it would call for a delayed retirement date under the multiply by-25 rule.

And the impact of this would be even more exaggerated if the lions’ share of your assets were still in stocks as opposed to bonds. Consequently, the culmination of your strategy to bring your portfolio into accord with this final rule is a key step in determining the perfect age at which you’re ready to pull the trigger and actually retire.

MONEY retirement planning

8 Things You Must Do Before You Retire

sébastien thibault

Getting ready to retire? The moves you make in the months before you call it quits can smooth the way to a secure future.

After working diligently for more than 30 years—so you could set yourself up financially for your golden years—the glow of retirement is finally on the horizon. Alas, it’s not time to relax just yet.

Each day more than 10,000 baby boomers enter retirement. Yet only around one-quarter of workers 55 and older say they’re doing a good job preparing for the next phase, according to the Employee Benefit Research Institute. The last 12 months before you call it a career is especially critical to putting your retirement on a prosperous path. It’s time to get your portfolio, health care, and other finances in order so you can enjoy your new life.

THE TURNING-POINT CHECKLIST

12 Months Out:

Dial back on stocks now. You still need the growth that equities provide, but even a 15% market slide in the year before you retire can erase four years’ worth of income. Cap stock exposure to around 50% in your sixties, advises Rande Spiegelman, vice president of financial planning at Schwab Center for Financial Research.

Raise cash. Your paychecks are about to stop. So as you downshift from stocks, move that money into a savings or money market account to fund at least one year of expenses, says Judith Ward, T. Rowe Price senior financial planner.

Set a realistic retirement budget. Use the worksheet on Fidelity’s free retirement-income planner to list all of your fixed and discretionary expenses. Then use T. Rowe Price’s free retirement-income calculator to see how safe that level of spending is likely to be, based on the size of your nest egg and age.

6 Months Out:

Play out Social Security scenarios. You can claim Social Security at 62, but if you can hold off until 70 your checks will be 76% bigger. Tool around FinancialEngines.com’s free Social Security Income Planner to find the best strategy for you.

Figure out how you’ll pay for health care. Check if your company offers retirees medical, long-term care, and other insurance coverage. If you won’t get health insurance and aren’t yet 65 (when you qualify for Medicare), then compare plans offered via the Affordable Care Act at eHealthInsurance.com. Or use COBRA, where you can stay on your employer plan up to 18 months after leaving.

3 MONTHS OUT:

Begin the rollover process. In a small 401(k) plan, average fund expenses can run north of 0.6% of assets. You can cut those fees at least in half by shifting into index funds at a low-cost IRA provider. See if your plan provides free access to investment advisers to help you decide.

Sign up for Medicare. Nearing 65? You can enroll for Medicare up to three months before turning that age. Also, figure in supplemental plans to cover expenses that Medicare does not, such as dental care and prescription drugs.

Get a running start. Put your post-career itinerary into action. Research volunteer groups that you want to join, reach out to contacts if you plan to keep a hand in work, start a new exercise routine, or begin planning that big trip.

MONEY retirement planning

The Single Biggest Threat To Your Retirement

Mirror
Shawn Gearhart—Getty Images

You might think a stock market slump or a shaky economy pose the biggest danger to your retirement. But the biggest threat may be looking back at you in the mirror.

There’s no shortage of things that can jeopardize your retirement security. Market slumps, job layoffs, medical expenses, an unanticipated spike in inflation, unexpected financial obligations…the list goes on and on. But as scary as these threats may be, they don’t represent the biggest danger to your retirement security. That would be…

You.

Yes, that attractive devil staring back at you in the mirror every morning.

That’s not to say the other hazards I’ve mentioned can’t diminish your retirement prospects. They can. But the danger we ourselves pose to our retirement security can be more insidious if only because we’re not as likely to be aware of it.

So how, exactly, do we undermine our own retirement success? Here are the main ways, followed by advice on how you can limit self-inflicted damage.

*We have a fear of commitment. I’m not talking relationships here, but the difficulty we have in starting to plan for retirement and, more specifically, beginning a savings regimen early on and sticking with it throughout our career. The latest stats from the Bureau of Economic Analysis show that the U.S. savings rate today hovers just below 6% of disposable income, less than half where it stood in the early 1970s. Even among people earning $100,000 or more, only about a third contribute the max to their 401(k). This reluctance to save isn’t totally surprising. After all, our brains are hard-wired for immediate gratification. The sleek car or fancy duds we can have right now are more appealing to us than financial security down the road.

*We’re too emotional. Just when we should be thinking with our heads, we too often go with our guts. Prime example: When the markets are booming, we feel more ebullient, which makes us more apt to underestimate the risk in stocks and load up on them. After a crash, our ebullience turns to gloom, leading us to overestimate the risk we face and flee stocks for the short-term safety of bonds and cash.

*We don’t follow through. Even when we take the time and effort to come up with a coherent strategy, such as building a diversified portfolio of stocks and bonds that jibes with our appetite for risk, we then sabotage our efforts by failing to adhere to our plan. We know that different returns for different asset classes will knock our portfolio’s balance out of whack over time. Still, we don’t bother to periodically rebalance our holdings to bring them back to their proper proportions. Similarly, even if go to the trouble to go to a good online retirement calculator to figure out how much we need to save to have a decent shot at a secure retirement, we often fail to monitor our progress and make periodic adjustments. Retirement is a multi-decade journey. You can’t set your course once and go on autopilot for 30 years.

*We focus on the wrong things. Instead of focusing on the most important aspects of retirement planning—Am I saving enough? Do I have the right mix of stocks and bonds? How should my spouse and I coordinate claiming Social Security to get more in benefits?—we get mired in the weeds, poring over performance charts for the funds that have the highest returns or endlessly researching exotic new investments that purport to provide more diversification in our portfolios. News flash: In the long run, the single most important thing you can do to improve your retirement prospects is save more. If you focus first on that and then turn your attention to building a simple mix of low-cost stock and bond index funds, you’ll have laid the groundwork for a secure retirement.

Fortunately, it’s possible, if not to completely eliminate, then at least mitigate the threat we pose to ourselves when it comes to retirement planning. We do have a natural tendency to spend, but behavioral research shows that we may be more likely to save for the future if we feel some sort of link with our future selves. One way to establish that link is to check out the Face Retirement tool in RDR’s Retirement Toolbox, which uses age-morphing technology to “introduce” you to your future self. Once you’ve made that connection, you may find it easier to set aside resources today to help the you of tomorrow.

Similarly, you can prevent emotions from wreaking havoc with your retirement by adopting a more disciplined approach to planning. Writing down a savings target—10% to 15% is reasonable—will make you more likely to adhere to it than a mere mental note to yourself to try to put some money away. Sign up for your 401(k) plan and elect to have that target percentage deducted from your paycheck, and boom! You’re overcoming both the fear to commit and the failure to follow through. Set an annual date—your birthday, day after Thanksgiving, whenever—to rebalance your retirement portfolio and check your progress with an online retirement planning calculator, and you’re doing an even better job on the follow-through front

The reality is that today the onus is increasingly on you to provide for your security in retirement. So the more you’re able to turn yourself into an asset that enhances your future financial prospects rather than a threat that diminishes them, the more secure and enjoyable a retirement you’re likely to achieve.

Walter Updegrave is the editor of RealDealRetirement.com. He previously wrote the Ask the Expert column for MONEY and CNNMoney. You can reach him at walter@realdealretirement.com.

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