Even though we are years past those dire financial days and retirement account balances have generally bounced back, there is still a great deal of volatility in the U.S. economy which may have you wondering if your money is safe and how you can invest wisely.
Believe it or not, even though economic changes can be worrisome for investors nearing retirement age or those who have already retired, they can be beneficial if you have solid long-term financial goals. Below are four ways you can help ensure that your retirement is on track.
1. Make a holistic assessment of your retirement goals
According to the Bureau of Labor Statistics, American retirement savings rates average less than five percent at age 20 but hover around 20 percent between the ages of 50 and 60. That’s because as we approach retirement, many of us come to the conclusion that we didn’t adequately save enough money earlier on.
The best way to decide how much and in what to invest for retirement is to make a clear assessment of what kind of lifestyle you want to live in retirement. Do you expect to have your mortgage paid and to live in your primary home? Are you considering buying a vacation home and splitting time between residences, or do you expect to do a lot of traveling when you retire? All of these questions speak to what kind of investment vehicles you should choose and how much money to put aside for retirement.
Another important question to ask yourself is what age you plan on retiring, because it affects things like 401k distributions and Social Security benefits.
Other noteworthy considerations regarding retirement investing include marital status and how risk-averse you are. About 65 percent of married couples had retirement savings in 2013, compared with 43 percent of single men and 42 percent of single women. Married couples tend to have twice as much saved for retirement as single men or women.
If you are risk averse, you may want to consider investment options that bring a lower degree of risk, as opposed to high rates of return. Low risk investments include certificates of deposit, money market funds, and government bonds.
2. Make your money work for you through financial services
If you are the type of investor who finds choosing investment options too complicated, you may want to employ a financial services company to put your money to work for you. Financial services companies include banks, credit unions, and security brokerages. They can assess your retirement goals and choose your investments based on how much risk you can tolerate, how much money you need in retirement, and when you need access to those funds. They can help take the guesswork out of which investments work best for you.
3. Compare different wealth management options
Ideally, people approaching or in the early years of retirement should have had a consistent, well-thought-out saving and investment plan, but the reality is that many are still trying to play catch-up and inevitably will retire with nowhere near enough savings. Luckily, there are ways to reduce your expenses and direct those savings to your retirement accounts.
- IRA/401k: The annual contribution limit for an IRA was $6,500 for people 50 and older for the 2017 tax year and $24,000 for a 401(k) plan.
- Invest in stocks: A 20 to 30 percent increase of stocks in your portfolio may bring greater returns, but keep in mind that the risk is higher and moderate moves are a better option in retirement.
- Work longer: Most people don’t want to work longer but doing so allows more time to build up your retirement savings. In addition, waiting to retire at age 70, as opposed to drawing benefits at age 62, will increase your Social Security benefit by as much as 32 percent.
- Consider downsizing: Most people want to retire to warm, sunny places like Florida, but if the cost of living adds too much to your monthly expenses, you may want to consider moving to less expensive parts of the country.
4. Hire a wealth advisor
If you are perplexed by money matters like investing and taxes and want a more personal approach to managing your money, consider hiring a wealth advisor. A certified financial planner or similar expert can manage a portfolio for you. Shop around for one that charges reasonable fees.
Be sure that your wealth advisor has your best interests in mind and is not trying to get you to invest in a product he or she is trying to sell in order to benefit their own interests. One way to ensure that is to see if your wealth advisor is willing to act as your fiduciary. By law fiduciaries are required to recommend investments that are in your best interest and not their own.
Investing for retirement can be complicated but by taking a holistic approach that sets goals and makes realistic plans for your retirement, you will be able to strike the right balance, enabling you to retire in a way that benefits you and your individual circumstances.