What You Need to Know About Retirement Investing
Retirement
Traditional Investments Used for Retirement Investing
Saving for retirement is similar to saving for other things in that you have similar investment options. Here is a run-down of the traditional investments and how they can work as retirement investments.
Stocks
Stocks provide the highest potential growth of all retirement investments but also come with the highest potential risk. A higher allocation of stocks is best early in your career when there is plenty of time before retirement to deal with any downturns in the market.
Bonds
As a retirement investment, bonds provide a lower growth rate than stocks but are much less risky in an economic downturn. It is a good idea when saving for retirement, to increase your allocation into bonds while decrease retirement investment allocation of stocks.
Mutual Funds
Mutual funds encompass a wide range of different types of funds available. This can include anything from an actively managed fund to an indexed fund. Actively managed funds will typically invest in a mixture of both bonds and stocks in an attempt to beat the market. As a retirement investment, mutual funds can be a good way to diversity your portfolio without the micromanagement that may be involved. Mutual fund allocation decisions should be made based on what types of stocks or bonds they invest in along with what type of asset allocation there is within the mutual fund itself.
Retirement Investing with Retirement Accounts
When saving for retirement, you have a few tools that are not available for other type of investments. These retirement accounts are built specifically to support your retirement investing. Here is a quick rundown of the different types of retirement investment accounts available.
401k
The 401k is an employer sponsored retirement investing account. 401k is the most popular retirement investment account and should be exhausted first because of the potential for employer deposit matches or contributions.
IRA
An Individual Retirement Account (IRA) is similar to a 401k with the tax deferral feature.
Annuities
Retirement Annuities are offered by life insurance companies and have very high fees of around 3% a year. These instruments should only be used for retirement investing if the specific features offered are worth the 3% fee. These retirement investments are rather heavily pushed by financial salespeople because of the very high commissions they provide. Make sure you are informed before diving headlong into something that could very well be a poor retirement investment choice for you.
To read more about these different retirement investments, see our article on Retirement Accounts.
Asset Allocation Strategies
Asset allocation for your retirement investing should depend primarily on age and distance from retirement. There are three phases of your life you should focus on when allocating your retirement investments.
Early Career
You also have a long time before retirement giving you ample room to regain any losses in the market. This is the time where you want to allocate the largest percentage of your retirement investments into high growth investments such as stocks. Always make sure to diversity and not put all of your retirement savings into just a few stocks to avoid unnecessary risk.
Mid Career
This phase is around 7-20 years before you are preparing for retirement.
Retirement
At this point of your life, you should already have a healthy amount of retirement savings due to your smart retirement investing. To meet this goal you want to have a portfolio more heavily allocated to retirement investments that will hold your wealth steady. This means less in stock and more in bonds and indexed mutual funds.
Upon retirement you will have your nest egg of retirement savings, but what is the best way to make it last? Not enough to wipe out your retirement savings but there will be fluctuations. To compensate, you can withdraw more of your retirement savings in boom periods and less in bust periods.
Withdrawal from your retirement savings can be further supplemented by other income sources. The retiree can also work a part time job to bring in more money to allow the retirement investments more time to grow.
There are a variety of retirement investments available for the different life circumstances someone may be in. This article gives you an overview of your options and different things to consider when planning your retirement investments. It may be a good idea to hire a professional financial planner to help you assess which retirement investments best fit your life. Saving for retirement is a very involved process and you should make sure you are putting in the time necessary to pick the best plan for your own retirement investing.
Don’t Blow Your Retirement Planning
The word retirement is accepted favorably by some and with trepidation by others. Regardless of what retirement means to you, one thing always holds true – you need a retirement plan if you want a secure retirement. You need some retirement planning advice.
Once you have defined your retirement goals, you need to consider which direction to take your financial resources so that you can make sure that you have a comfortable retirement. There are places you can check out that have solid financial planning and retirement planning advice.
Charles Schwab
Charles Schwab can help you plan for your retirement by giving you valuable advice and the necessary tools to make it happen. You can request their free “Retirement Planning Guide” or contact a Schwab retirement specialist for retirement planning advice. They will make sure that you do everything that you can to strengthen your retirement income.
MetLife
The retirement planning advice is practical and solid. There is a “Retirement Toolbox” that can help you plan for your retirement. “MetLife Retirement” offers some excellent advice for people who are already retired or those who are a long way from retirement, you just choose your category and MetLife has the answers and advice that you want.
Ameriprise Financial
Ameriprise has a “Retirement Planning” section on their website. You can find a wealth of retirement planning advice on this website.
Retirement Plan Advisors
If hands on planning is more your thing, then Retirement Plan Advisors (RPA) is the company for you. The offer personal service in a wide range of financial planning services including retirement planning advice. They can help you get your retirement planning on track, regardless of where you are on the retirement path.
Third Age
Check out their “Retire Well” section for great tips.
There are many, many great sites that can help you plan for your retirement. In fact, you may even find it helpful to combine the retirement planning advice from several areas to find the plan that works for you. The important thing to remember is to select a retirement plan that suits your lifestyle and sets you on a path to achieve the type of retirement that you really want.
