Retirement planning can be an overwhelming proposition. There are many options and the markets are always changing. This makes it tempting to set up something generic and then leave your portfolio “on autopilot.”
However, if you want to succeed with your retirement efforts, you need to go further. Here are a few suggestions for ways to ensure that your investments are working for you.
Set Up the Right Account for Your Needs
It’s difficult to have healthy investments if you don’t understand what your options are. This starts with the kind of account that you set up. This can be an IRA, a 401(k), or even a pension plan depending on what’s available.
In addition, many of these have sub-categories. For instance, you can set up a traditional IRA or a Roth IRA. Nerdwallet succinctly explains the difference between the two of these: “Contributions to traditional IRAs are tax-deductible, but withdrawals in retirement are taxable. In comparison, contributions to Roth IRAs are not tax-deductible, but the withdrawals in retirement are tax-free.”
Each of these has its advantages and disadvantages, which will vary depending on your specific circumstances. As with all of these recommendations, it’s highly advisable to seek financial counsel when choosing your retirement plan to set up an account that will serve you best.
Choose the Right Investments
Along with the kind of account, consider the types of investments that you should populate it with. Common investment options include:
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- Stocks and bonds;
- Mutual Funds;
- ETFs (exchange-traded funds);
- DRIPs (dividend reinvestment plans);
- Cash investments (like a CD);
- Alternative investments (like real estate or cryptocurrency.)
Each of these options comes with varying levels of risk. For instance, alternative investments tend to be high-risk, high-reward investments. It’s wise to avoid over-investing in these categories. However, sprinkling some of them into your retirement account has the potential to yield massive returns.
Annuities, on the other hand, provide a dependable foundation for a retirement account. Ty Young Wealth Management explains that “Annuities can provide safety, stability, and growth without downside market risk and with minimal or no fees. Of course, you have to choose top-performing products.”
Make sure to choose investments that are diverse and targeted toward your needs. For instance, if you have a long way to go until retirement, you may want to opt for more high-risk options. However, if you’re retiring in the next decade, it warrants a safer approach.
Invest Consistent Time, Too
Money isn’t the only thing you should be investing in your future. It’s also important to be purposeful as you set aside time to plan.
The above recommendations — and most of the elements of retirement planning — require a solid investment of time. Some of this needs to be upfront. In the same way that a new business owner pours extra time and effort into a startup, you need to give your fledgling retirement account all of the time it needs to become a well-established part of your finances.
From there, build time into your schedule to regularly reassess risk, diversity, growth, and so on. Heartland Trust Company highlights two factors that should dictate how often you review your retirement: “It’s generally a good idea to review your employer-sponsored retirement savings plan at least once each year and when major life changes occur.”
Whether it’s circumstantial or time-based, make sure you’re reviewing your retirement investments on a regular basis.
These three tips just scratch the surface. There are countless minor factors and decisions that go into a healthy retirement portfolio.
However, the way that you approach your investments can make a huge difference in your long-term success. Make sure to lay a firm foundation by picking the best retirement accounts and filling them with a diverse selection of investment options. Then schedule times to revisit those investments on the regular.
If you can do that, you can keep your retirement on track year after year as you build toward a healthy financial future.