UPDATED – October 4, 2018:It is never too early or too late to begin saving for retirement. Investing offers an excellent opportunity to grow your financial assets and to give you more money to work with.
Now, as you approach retirement age your investment approach does need to change. Your financial planner can assist with this, but if you are going at it alone or just to prepare yourself for what will come, here are a handful of pointers you need to follow in order to make sure you have the right financial plans established.
Probably the most important plan you can follow as you near retirement is reduce your investment risk. Early on in your investing career, putting money into higher-risk ventures is worth wild. It pays off more and, should some investments fail, you have more than enough time to earn the money back.
If you plan on retiring in the next few years, you don’t have this kind of time to make the money back. Due to this, reducing risk is important. This means moving money from stocks into retirement funds, CDs, high-yielding bank accounts, bonds, precious metals and mutual funds.
All of these methods still provide you with money making methods while reducing your overall risk potential. This isn’t to say you should take all your funding out of stocks and high-risk investments, but simply reduce the investments.
Diversifying your investments is something you need to do from day one of planning for retirement. However, you need to make sure this continues as you near retirement. Many individuals who look at reducing their risk put most of their money into one or two options.
While these investment methods are lower risk, problems can still arise, which is why diversifying is important. Mutual funds offer lower risk than stocks, but should the market sink drastically, mutual funds will likely follow.
The same can happen with precious metals and even bonds (depending on the bond). Spreading investments around as far as possible ensures growth and allows you to avoid having your nest egg removed.
Fixed Rate Investments
As you see that retirement age approach, you need to have a better idea of what money you can count on. This is why using fixed rate investments is important. With bonds and CDs you know typically what the payoff is and what to expect when the investments are ready to cash in.
On top of this, you will need to have access to some money in the short term, which is defined as anytime in the next five years. This money should be placed into fixed rate investments (you have a bit more wiggle room with longer term investments as some additional risk can be acceptable).
Increased 401(k) and IRA
Putting money into an IRA and 401(k) is a good idea. You are able to put up to $5,500 into your account up until the age of 50. Once you hit this magic number you can increase your deposits to $6,500 with the IRA and contributed 401(k) to $23,000. These are investment accounts you need to take advantage of. This is especially the case if you have a company that matches your investment deposits.
Always take advantage of a company offering a match investment as it basically is free money into your account. The last years up until your retirement can provide a boost in savings with a reduced risk and yet a higher yield thanks to the larger deposit amounts. Never leave money on the table when it comes to your retirement.