When you’re young and just starting your investment portfolio, you should take significant risks. Investing is incredibly viable to save money, gain debt relief, and earn extra money. This can help you build up an impressive nest egg and, if you suffer losses, you still have your 30s and 40s to rebuild your savings. But as you draw nearer to retirement age, it’s essential to find ways to protect your savings.
Reorganize Your Holdings
As mentioned previously, your youth should be spent taking the risks that will help you build a substantial retirement fund. Most financial experts recommend a portfolio that consists of 80% stocks to 20% bonds, but as you age, that ratio should also change. Every ten years or so, you should shift 10% of your holdings from stocks to bonds so that it will look something like this:
- Ages 25 to 34: 80% stocks versus 20% bonds
- Ages 35 to 44: 70% stocks versus 30% bonds
- Ages 45 to 54: 60% stocks versus 40% bonds
- Ages 55 to 64: 50% stocks versus 50% bonds
Avoid Touching Your Savings
As life’s little emergencies crop up, you may be tempted to dip into your retirement accounts. Aside from the penalties and taxes, you’ll pay for early withdrawal, and you’ll also be diminishing what you’ll receive at retirement. Look for other ways of financing these unexpected expenses. One option is to apply for a reverse mortgage instead of borrowing against your 401k. A reverse mortgage is a mortgage loan, just like the current mortgage you may have or have had in the past, but will eliminate your monthly mortgage payment. You would still live in your home during the time of it until you need to leave your home where the loan becomes due, and you can begin to pay then or merely sell-off to pay off the mortgage. But be aware of reverse mortgage scams, and make sure you do your research before signing a contract. Retirement is a bit difficult to plan, but there are plenty of options out there to consider.
Be Wary of Inflation
The cost of living will continue to rise throughout your lifetime, so you’re not making as much on your investments as you may think. As you get nearer to your retirement age, look for investments that will keep in step with inflation. Some options may be investing in mutual funds or buying into Treasury inflation-protected securities (TIPS). Additionally, real estate securities can also provide growth that keeps up with the evolving cost of living rates.
Don’t Forget to Account for Medical Care
Many retirees run out of money and must return to work because they don’t account for longer life or the inevitable health care costs they will face. Fidelity estimates that each retiree will need at least $275,000 to cover out-of-pocket healthcare costs. That estimation was made based on current life expectancies, so as people start living longer, those costs will rise as well. Planning for these expenses now will help you save that drain on your retirement savings later.
Preparing for retirement requires some foresight and planning, but an early start can help you amass just what you’ll need. As you get closer to retirement age, it becomes more important to protect what you have saved. This can help you enjoy your elder years and live a far less stressful life.