Detroit Pension Cuts a Stark Reminder Why Long-Term Investing Matters

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Detroit Pension Cuts a Stark Reminder Why Long-Term Investing Matters

Jul 22, 2014

As if the news couldn’t get any bleaker for those Detroit pension retirees, a vote last night (approved by the retirees themselves) means that a pension settlement has been reached. The news is bleak is because the result forces retirees to take a 4.5% pay cut, and worse still, they will see a loss of annual inflation adjustments.

Inflation Costs

With inflation averaging about a 4% increase a year (if you factor actual numbers and not the government-friendly CPI stats), pension buying power will evaporate much sooner than retirees can imagine. Throw in increases to health care costs and the result is a lean retirement. Despite these “small” facts, the vote result is being calculated as a big step for the city of Detroit and its attempts to rebuild. However, the reality is the price being paid is not what retirees would have ever imagined when they decided to dedicate their working life to the city of Detroit.

Whether you work in a union, in corporate America, in small business, or even own your own business, the financial future is never guaranteed so once you understand the potential potholes that most of us face, the importance of investing early and often takes center stage.

Plan Ahead

In thinking about retirement, too often, actions tend to come too little and much too late. With mutual fund investing, individuals can create a simple schedule to contribute money from their paychecks each pay period and not have to worry about having to make an extra step to invest. The hard part for individuals is when the money is in hand, it’s easy to spend and skip the investing part. The risk of doing so results in long-term financial risk.

The Bottom Line

If you are out there in the working world trying to make enough money to pay your bills, save, and invest, the game plan has not changed. If you are retired and trying to not fall behind inflation, the game has also not changed. Did it pay to panic at the Dow 6500 lows in early 2009? No, because long-term investors were fixated on retirement income. The reality was knowing we were likely going to be paying some lower prices than we may have originally paid. Will the mutual fund investing road be bumpy? When is investing or life for that matter ever not just a wee bit bumpy? It’s how we react when those shaky periods occur that will define how we ultimately arrive at our desired destination of financial independence.

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