Tag Archives: asset allocation strategies

Retire Without the Worry

More than half (54%) of near-retirees say they’re concerned about having enough money to last through retirement. Forty-five percent say they’ll need to work at some point during retirement.* But this doesn’t have to be your retirement story. Following these tips may give you a better retirement outlook.

Be flexible

Retirement10Retiring before you’re financially or psychologically ready can put a damper on your retirement. From a financial standpoint, if you retire too soon, you risk running out of money. Periodically review your retirement investments with your financial professional to see if you’re on track for your desired retirement date. If not, you may have to work a year or two longer, which could make a surprising difference in retirement readiness. Or, if you’re able to, increase contributions to your retirement account by enough now to meet your desired retirement date.

If you haven’t thought about what you’re going to do with your time, you may be at loose ends when you retire. Explore paying and nonpaying options for keeping active before you retire. The Employee Benefit Research Institute found that many retirement-aged people have nonfinancial reasons for continuing to work full- or part-time.**

Have multiple resources

It’s good to have a fixed income source, such as Social Security benefits and/or an employer sponsored pension plan, to help cover basic expenses and variable income sources, such as a 401(k) account, an individual retirement account (IRA) and personal investments. Because these accounts have the potential to increase in value, they may help cushion inflationary price increases. You can use the funds to help cover unexpected expenses and/or pay for retirement living expenses.

Be realistic about retirement expenses

Your expenses may or may not decrease at retirement, depending on the activities you intend to pursue. Ask your financial professional to help you realistically project your future retirement expenses based on your individual needs and wants so you can judge if you’re financially ready to retire.

* Maritz Research Retirement Study, 2013, surveying individuals with less than $500,000 in retirement resources

** ebri.org Issue Brief, March 2013, No. 384

How Does Your Investment Garden Grow?

Image 1Getting ready to plant your garden now that the weather is warmer? Before you start, you’ll have to choose the kinds of plants you want and where they will go in your yard. You can’t just throw all the seeds on the ground and hope for the best.

Choosing what portion of your total portfolio to invest in different asset classes — a process called asset allocation1 — is a lot like planning a garden. Each major asset class — stocks, bonds, and cash — has different risk characteristics. Selecting the right mix of investments to fit your objectives, time frame, and risk tolerance can have a big impact on whether or not you reach your financial goals.

Plant for Growth

If you’re investing for the long term and have several years until you’ll need your money, you may want to devote a large percentage of your portfolio to equity investments. In fact, you should consider putting some money in stocks even if you’ll need your money sooner. Although stocks are volatile, they offer the greatest potential for inflation-beating returns and, historically, have generally outperformed other investment types over the long term. Selecting a variety of stock types, such as foreign and large-, mid-, and small-cap stocks, from several different sectors of the economy will help diversify1 your portfolio.

Add Some Contrast

To help manage risk, consider diversifying beyond stocks. Fixed income2 investment values often move in the opposite direction of stock values and may help cushion your portfolio against major losses when stocks are not performing well.

Cash for Color

Cash investments,3 such as Treasury bills, help you invest for short-term goals and can easily be converted to cash in an emergency. But keep in mind that rates of return on cash investments are typically low and may not keep pace with inflation.

1 Asset allocation and diversification do not guarantee a profit or protect against losses.

2 Prices of fixed income securities may fluctuate due to interest-rate changes. Investors may lose money if bonds are sold before maturity.

3 Cash alternative investments may not be federally guaranteed or insured and it is possible to lose money by investing in cash alternatives.

Life Lessons: Countdown to Retirement

If retirement is close at hand, you’re probably ready to start relaxing after years of working hard. However, there are still a few more details to take care of to make sure you’re well prepared for your future. Here are a few suggestions to help you count down to retirement.

early_retirementReview Your Asset Allocation

Look closely at your portfolio’s asset allocation. As you near retirement, you may want to reduce your exposure to more volatile investments, such as stocks. However, consider keeping some of your retirement dollars allocated to stock funds or portfolios. Since your retirement could last a long time, you may want some investments that have the potential to produce inflation-beating returns.

Consider Distribution Options

Well before your retirement date, consider your plan distribution options. Keep in mind that if you take a lump-sum payment, you’ll owe income taxes in the year you receive the distribution.* That will leave you with less money to spend and reinvest during retirement.

Instead, you may choose to roll over the distribution into an individual retirement account (IRA) to defer taxation. Or you may be able to keep your money in your existing plan account. Either way, withdrawing the money over time would spread out your tax liability. If you decide to roll a plan distribution into an IRA, consider having your money directly transferred by your plan to the IRA to avoid federal income-tax withholding.

Keep Contributing to Your Plan

Use the time between now and retirement to add to your retirement savings. If you’re age 50 or over, your employer’s plan may allow you to make extra “catch-up” contributions. If this opportunity is available to you, taking advantage of it may help you accumulate more money for your retirement.

* Qualified Roth distributions are not subject to federal income taxes.