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Testimony Before the Senate Special Committee on Aging on Managing Retirement Assets

What the fees cost you on an initial $10,000 investment Pay these fees for a low-cost fund (0.50%) Pay these fees for a mid-cost fund (1.25%) The low-cost fund saves you…
10 years $796 $1,925 $1,129
20 years $2,531 $5,902 $3,371
30 years $6,034 $13,585 $7,551

    Use Index Funds

    Investment research shows that mutual fund managers who try to buy and sell individual companies based on their own research have difficulty outperforming the broader markets over time. That is why index funds are so attractive. Index funds offer a broad range of benefits including simplicity, lower costs, diversification, matching the market, and tax advantages.

    Diversify to Reduce Risk

    Diversification means spreading investments among different asset classes, and having exposure to a large number of different companies. It is difficult to tell with certainty which investments will rise in price; yet, when individuals diversify their portfolios they improve their chances of owning investments that will increase in value. Just as important, however, a diversified portfolio helps lessen the impact of investments that lose value.

    Rebalance to Stay on Track

    Once investment decisions have been made, many investors do not revisit those choices. Yet, markets change. Rebalancing helps maintain target asset allocation among stocks, bonds and cash, and avoids exposing workers and retirees to inappropriate risk. Some funds are regularly rebalanced to help them maintain their diversification and control risk, which may be especially helpful to individuals who are less comfortable managing their assets.

    Keep it Simple

    Since there are over 10,000 mutual funds in the United States, it is important for investors of any age to determine which fund is right for their financial situation. Having too many choices can be overwhelming, making it difficult to manage risk, ensure proper diversification, and be confident that all their investments are working toward a common goal.

    As part of AARP's continued efforts to empower those age 50 and over to have a secure financial future and safeguard their assets, we have conducted seminars, consumer universities, and other educational programs on financial literacy and investment strategies. Many more are planned as we help our members to become financially literate and be smarter investors and consumers of financial products.

D. Earnings/work. Earnings are becoming a growing source of household income in old age. According to SSA, earnings accounted for nearly 25 percent of the aggregate income of aged 65+ units in 2002, up from under 21 percent in 1998. Many signs point to further increases in the need for earnings during the "retirement" years, especially since nearly 80 percent of boomers in an AARP survey say they expect to work in retirement.

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