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.
As you approach retirement age, your investment approach needs to change.
Your financial planner can assist with this, but if you are going at it alone or to prepare yourself for what will come, here are a handful of pointers you need to follow to make sure you have the right financial plans established.
Why Smart People Reduce their Risk
The most important plan you can follow as you near retirement is reducing your investment risk.
Early in your investing career, putting money into higher-risk ventures is worth wild.
It pays off more, and you have more than enough time to earn money back if some investments fail.
If you plan on retiring in the next few years, you don’t have this kind of time to make 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 reduce the investments.
Diversify Like it’s your Job
You need to diversify your investments from day one of planning for retirement. However, it would help if you made 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.
Why Fixed Rate Investments?
As you see that retirement age approach, you need a better idea of what money you can count on. This is why using fixed-rate investments is important. With bonds and CDs, you typically know the payoff 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 any time 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 can put up to $5,500 into your account until age 50.
Once you hit this magic number, you can increase your deposits to $6,500 with the IRA and contribute 401(k) to $23,000. These are investment accounts you need to take advantage of.
This is especially true if you have a company that matches your investment deposits.
Always take advantage of a company offering a matching investment; it is free money into your account.
The last years until your retirement can provide a boost in savings with reduced risk and a higher yield thanks to the larger deposit amounts. Never leave money on the table when it comes to your retirement.