Investing for Retirement [Living Well When the Work is Done] (2024)

Who doesn’t know how vital it is to put aside some money for retirement? However, you need to do much more than simply stashing some money in a safe at home or leaving it in a savings account at a bank.

You want to put your money where it won’t lose its value due to inflation. In this article, you will learn where to invest, what to invest in, and how to invest for your retirement, so you can be able to support yourself after retirement.

Retirement Accounts

There are several options of where you can put aside some money for your retirement. Let’s look at three major options for retirement accounts:

401 (k) or 403 (b) Plan

Your employer may offer you a retirement account where you can put your money. These accounts include 401(k) and 403(b) plans.

The best thing about this option is that your money will multiply tax-free until you withdraw it when you retire. Moreover, the money you put into the plan or the money you withdraw is non-taxable.

Tax-advantaged Individual Retirement Account (IRA)

You can open your own tax-advantaged retirement account and put your money there. A good example of a tax-advantaged account is an individual retirement account (IRA).

There are two main types of IRAs – Tradition and Roth. They both allow the same maximum annual contributions, depending on your age.

However, contributions to a Roth IRA are made with after-tax money. That means there’s no tax deduction regardless of income.

Conversely, traditional IRAs offer tax-deferred growth potential. That means you won’t pay taxes on any investment until you withdraw the money from your account when you retire.

Small Business Owner Retirement Savings

Small business owners frequently have a hard time savings for retirement. When every extra dollar is invested in growing you business, that doesn’t leave much for retirement savings.

While small business owners can take advantage of individual retirement accounts, the relatively low annual contribution limits. prevents them from catching up with their retirement savings once their business is established and producing good revenue.

To remedy this there are several small business retirement accounts that allow you to save much larger sums each year. The two most popular are:

• SEP IRA
• Solo 401(k)

Regular Investment Account

Another option, but the least popular is to put your money into a regular investment account that doesn’t offer any tax advantages. There are unique cases where this might be your best choice.

What Should I Invest In?

The last thing you would want after retirement is going back to work to support yourself. You can avoid that by finding the best retirement investments that can help you grow your investments during your working years.

As you get closer to retirement you will want to shift your investments to options that are less risky and will produce income over the rest of your life.

That said, here’s a look at the most popular investments that you can consider:

Robo-advisors

A robo-advisor is a type of financial consultant that employs technology to simplify investment processes. It normally creates a few investment portfolios before selecting the most promising one for you based on your goals and tolerance for risk.

The use of technology in building portfolios plays a great role in reducing costs, making financial advice affordable to investors from all walks of life.

Robo-advisors normally charge between 0.25% and 0.89% of the amount you’re looking to invest. This is much lower than what you would pay with a standard local adviser.

The most popular robo-advisor is currently Betterment. With low fees and a great interface, Betterment is an easy option for any one looking for hands off approach to retirement savings.

Mutual Funds

Easily one of the most popular options for those investing for retirement. Mutual funds allow you to invest a large number of stocks or other investments.

The fund is managed by a professional fund manager who uses an investment strategy that you can see how it has done over longer periods of time.

Investing in mutual funds is a tried and true option for retirement savings.

You can start by investing in an online brokerage account. One of the better options is TD Ameritrade which has more than 2,000 different mutual funds you can invest in for no trading fees.

Open an account with TD Ameritrade>>

ETFs

Exchange traded funds are like the close sibling to mutual funds. Instead of having to buy into the fund, you invest in an ETF just like you buy shares of stock.

This means you can buy in at a much lower rate than with mutual funds. On top of that, brokerages like M1 Finance allow you to buy ETF shares with no brokerage fees. This means not only are your expenses low the trading fees are zero.

Bonds

A bond is basically a loan that you give to the government, company, or municipality that then pays you regular interest. You can invest in an individual bond or multiple bonds bundled in bond funds. Upon maturity of the bond, you get your principal back.

It would help if you realized that bonds are a low-risk investment. That means returns are normally lower compared to other investments. Therefore, you shouldn’t buy bonds with the aim of growing your money.

You should buy them because of the regular interest you’ll be receiving and the assurance that you’ll receive the principal when the bond matures. These are great for safeguarding money from the risk of the stock market.

Retirement Income Funds

If you are interested in monitoring your investment portfolio regularly, then retirement income funds would be a great option for you.

Retirement income funds are a form of mutual fund that automatically invests your money in a diversified portfolio of bonds and stocks with the aim of generating monthly income. Just like with mutual funds, retirement income funds allow you to withdraw your money whenever you need it.

Rental Real Estate

You can invest in real estate as it can be a source of regular income. You should realize, however, that you need to be pro-active when it comes to renting out your property for income. You may need to invest more money, time, and effort than you might have expected in your retirement.

Before you invest in rental real estate, you should take into consideration the rental property expenses you might incur over time. This may include maintenance, natural disasters, and vandalism. You should also consider vacancy rates.

While property management can help you avoid these headaches, you will likely pay about 10% in fees to the management company. No matter your choice, be sure to research widely before putting your money in rental real estate.

Real Estate Investment Trusts (REITs)

REITs can be a great option for diversifying your portfolio by allowing you to easily invest in real estate. These are a similar to mutual funds that aggregate real estate properties such as apartment buildings, vacation properties, and commercial premises.

Professionals are paid to manage the properties, collect rent, and pay bills. Then, you get the rest of the income.

One of the better options on the market is Fundrise. They allow you to invest in their REITs for as little as $500 to start off.

Target-date Funds

Target-date funds, also referred to as lifecycle funds, are mutual funds that invest in other mutual funds. That means you don’t need to invest in individual mutual funds. A target-date will handle everything you need to do as an investor and get you your desired level of diversification.

The best thing about investing in a target-date fund is that when you approach your retirement age, the fund slows down on investment to ensure that your savings are protected against a market recession. However, how do you invest in a target-date fund?

If your employer offers a retirement plan, especially a 401(k), you most probably have a target-date fund at your disposal. Investment Company Institute estimates that at least 65% of 401(k) plans provide target-date funds.

If your employer doesn’t offer a retirement plan, then you should consider opening an Investment Retirement Account (IRA) where you can invest in a target-date fund

Changing Your Investments as You Approach Retirement

According to many investment experts, it’s advisable to gradually change from stock to bonds as you draw closer to your retirement age. This helps to safeguard the money that you have accumulated so far.

Also, the fact that you can spend decades in retirement, it is important to preserve a significant amount of stocks even after retirement. Some experts suggest that your stock to bond ratios should be as follows, depending on your age:

If you don’t want to stress yourself with changing investments as you approach your retirement, then you might consider investing in a target-date fund. We’ve explained what target-date funds are in the previous section.

Make sure you pick a fund with the year you expect to retire. A target-date fund will automatically adjust your investment portfolio in a bid to minimize your risk and maximize your returns as you draw closer to your retirement.

How Much Should I Save for Retirement

You can save as much as you can. According to most financial planners, however, you should save between 10% and 15% of your income for retirement. It’s advisable to start saving as early as possible, ideally before 25 years old.

Other experts recommend that your retirement income should be at least 80% of your final pre-retirement salary. If you’re earning $120,000 a year at retirement, for example, you will need an annual income of $96,000 to live comfortably in your retirement. You can increase or reduce that amount depending on your sources income, your preferred lifestyle, and your health.

One great way to determine the amount you’ll need to have saved to generate your desired retirement income is to divide your desired annual retirement income by 4%. For example, you would need a nest a retirement of at least $2.4 million to generate at least $96000 quoted above.

Another great way to figure out how much you should save for your retirement is to use an online calculator. There are numerous options to choose from.

With an online calculator, you can easily determine how much money you need to accumulate and how much you need to put aside in the meantime to achieve that goal.

It is important to update your calculations every year. You want to be sure that you’re right on course.

Regardless of the approach you take to save for your retirement, there’s a high chance your actual capacity to save will be affected by life events. There are times you’ll manage to save more and other times you’ll save less.

This should not discourage you. Whatever the situation, try to get as close to your savings target as possible and regularly keep tabs with your progress to ensure you don’t deviate from the track.

How Often Should I Check My Accounts

Investing for retirement makes you a long-term investor. Long-term investors don’t need to check their accounts too often, provided they have done everything in regard to setting up those accounts.

If you have a properly diversified account and you chose your investments carefully, you might only need to check your accounts once or twice a year.

The purpose of checking your accounts in normally to ensure that you are taking the right level of risk in your investments. You want to ensure that you are maintaining the right stocks to bonds ratio.

Checking your accounts regularly can also help you to detect any serious changes in your account. It also helps you to figure out if it’s time to re-balance back to the investment mix that you originally wanted to implement.

It’s also advisable to check your accounts when a major event occurs, especially a major change in your life. This can be a market downturn, a job loss, inherited money, or a diagnosis of a disease that may demand a large amount of money in the near future.

Most of these events come without warning, and they can be disastrous if you didn’t consider them when choosing the investments you currently run. Consequently, it would be a great idea to make some adjustments to your investments to account for these changes.

As you approach your retirement age, it is prudent to check in on your accounts a little more often. That doesn’t mean you check every week. You don’t want to panic.

You only need to pay some extra attention to your accounts to ensure that you are on the right track. As you transition from one phase of life to the next, you’ll want to make sure your nest egg matches your expected expenses.

Final Thoughts on Investing for Retirement

Setting money aside and investing for your retirement is essential. You shouldn’t do that simply because you enjoy the process, but because you want to accumulate a nest egg for retirement. Moreover, it is important to know how to invest, where to invest, and in what to invest.

Knowing how to invest is great, especially if you have set your plans and the time of your retirement. Many investment options will guarantee you a regular income and a comfortable life after retirement. These include bonds, mutual funds, REITs, Retirement Income Funds, Individual stocks, Target-date Funds, and Robo-advisors.

It’s advisable to start saving and investing for your retirement in your 20s, but it’s never too late to start. You can start even with the smallest amount possible. If you choose your investments wisely, you’ll notice them growing and their value increasing over time.