Retirement · February 04, 2021

What to Consider When You're Investing for Retirement

Planning for your retirement is one of the most important aspects of wealth management. While you may not consider yourself wealthy, you may have more wealth than you think, especially if you own a home, have been contributing to a 401(k) for many years or have other retirement accounts. With the right strategy in place, these sources of wealth can play a big role in helping you retire in the way you want.

The key to successfully investing for retirement is optimizing your assets for the future based on your specific situation and goals.

Factors to consider

There's one very simple goal that everyone shares in retirement planning—having enough money to cover your needs after you've stopped working full-time. You'll want to look at your total wealth portfolio with four main considerations in mind.

1 When you'll stop working

Your chosen retirement date can make a big strategic difference in your planning. Even working a few years beyond the anticipated retirement date may put a significant amount of dollars into your retirement fund. In fact, it might have a two-fold effect—not only are you putting more money away, but you'll also increase Social Security payments, because the longer you wait to access Social Security, the more you'll have. This could make an enormous impact on how money much you have during retirement, in combination with how well you manage your current savings.

2 How you'll allocate your assets

Asset allocation refers to how you diversify investments across different types of categories. Typically, the main investment types are stocks, bonds, mutual funds, exchange-traded funds, and cash or cash equivalents. You can also diversify across other types of assets, such as real estate, and choose a mix of categories like international and domestic, or small cap or large cap investments. Also, consider investing in a variety of industries such as tech, healthcare, consumer or financials. Within those different assets, some carry a higher risk-to-reward ratio, and others carry lower risk relative to reward. The proper asset allocation should give you the best chance at getting the maximum return based on the level of risk you're willing to accept.

Planning for retirement gives you the ability to build a nest egg while accounting for inflation through flexibility in your portfolio. You may need to rebalance your portfolio from time to time, as some investments perform better than others during different periods. As retirement age nears, you may want to change investments to decrease risk and plan for a larger cash flow.

3 How to manage risk

A financial plan for retirement typically includes a variety of high- and low-risk assets. Typically, higher-risk investments make sense the further away you are from retirement. By accepting more risk earlier in your investing years, you're likely to earn more money and will have time to recover from market downturns. As retirement nears, it makes sense to move to lower-risk investments to reduce volatility and ensure money will be there when you need it.

Target-date funds are one option for balancing the risk-reward ratio. This class of funds blends investment classes by starting with riskier, higher-return assets and shifting them toward more conservative options over time, based on mathematical formulas. These funds are chosen with a specific retirement date in mind and are often staggered over a range of possible retirement dates. It also removes some confusion around what assets to invest in at what time, since the fund handles these choices automatically, with the goal of optimizing your returns.

4 When and how you'll rebalance your portfolio

The goal of rebalancing your portfolio is to do a periodic checkup and see how your asset values have changed compared to your target allocation. Parts of your portfolio may be outperforming other parts, which could result in your asset allocation changing. For example, if stocks are outperforming bonds, your 50/50 portfolio may change to a 70/30 portfolio. You may need to sell and buy some assets to get back to your target goal. This allows you to continually fine-tune investments as you get closer to retirement age, so you can make sure you're meeting your goals.

Rebalancing can be done at set intervals, like quarterly or annually. Or, you can rebalance at any time your asset allocation has changed significantly. You may decide you want to sell an asset that hasn't been performing as expected or buy a different asset. As long as you stick to your target allocation, this will help you meet your goals.

Make sure to evaluate and adjust your target allocation over time, as it will change the closer you get to retirement. Even after retirement, you'll still likely want to keep a portion of your money invested as not all money will be needed immediately. The key to preparing for retirement is selecting the proper asset allocation based on your current needs, future needs and accounting for the future impacts of inflation over time.

Seek trusted advice

Your strategy for investing for retirement is a topic to discuss at regular intervals with your financial advisor. They can be a valuable partner in looking at your total wealth portfolio and helping you make objective decisions about which assets to move and when so that you stay on track toward the future you want.


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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.