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How to Invest for Retirement

It’s time to save and invest for retirement. Don’t simply rely on social security benefits as your entire retirement planning won’t help you retire well. It’s essential to grow your money through investing.

Retirement is a word that triggers both negative and positive emotions, especially when it’s your retirement in question. One might feel very excited about having time off from work and spending their retirement focusing on hobbies, while another one might even fall into a depression.

In this article, we’ll show options, investment strategies, and steps to build up your retirement savings.

Are You Ready for Retirement?

Studies show that the transition to retirement can take a toll on a person’s mental health and wellbeing, from mourning leaving the workplace, to not feeling valuable anymore in society, as well as worries for financial security in the future. But like anything that poses a challenge, there are also solutions, and when it comes to retirement, planning is the golden word. 

When we’re younger, our focus is most likely not on retirement. That’s because we see our time horizon for the retirement age to be far off into the future. But your 20s and 30s are a good time to start your retirement planning. The sooner you start planning and investing for retirement, the more time to build a larger nest egg and gain a better sense of financial security. Because let’s face it, financial security is an important pillar for your overall wellbeing. 

And nothing says financial security better than good investments, be they individual retirement accounts, stocks, mutual funds, exchange-traded funds, real estate, etc. So let’s take a look at what you need to keep in mind so you can invest for retirement and give yourself the retirement income to continue living your life. 

What to Keep in Mind Before You Start Investing for Retirement

The process of investing for retirement begins before you actually decide upon which investments to make. Therefore, the planning part is crucial for a successful retirement.

  • Find out how you’d like to spend your retirement. You can consider this a sort of goal that you will be aiming for. For example, you’d like to travel the world when you retire? If yes, how often will you travel and what parts of the world are on your list? This will give you an estimate of what budget you’ll need for this. Or maybe your retirement dream is a small farm in the countryside. Whatever your dreams are, note them down, this will help you understand how much money you’ll need when you get there. Learn how to create a vision statement.
  • Include retirement savings into your budget. Once you decide to invest for retirement, your monthly/yearly budget should include your retirement investments/savings. This will help you maintain regular contributions to your retirement portfolio nest egg. Learn how to start a budget here.
  • Set up automatic transfers. Automating your transfers/savings will help you automatically set a certain amount aside each month, week, etc. You can choose the exact sum and a regular payment date when the money will go from your main account to a savings one. If your income increases, don’t forget to up the regular automated retirement transfer as well.
  • Don’t forget about your emergency fund. This goes without saying, but investing in anything, not just retirement, should coincide with an emergency fund set up, with at least 6 months worth of living expenses. Learn how to set up your emergency fund savings strategy.
  • Debt payoff. Add to your retirement goal to be debt-free by the time you retire. Tackle credit card debt, student loans, and mortgage payments on a regular basis to decrease your debt until you pay it off completely. Your retirement savings should help you cover the cost of living, not obligated to debt payments.

How much do you need to save for retirement?

It is challenging to think about what life will be like in your 70s. It can be overwhelming to think about a future that is decades away when you’re still working to achieve near-term financial goals. Having a retirement roadmap can help you make investment decisions that support short and long-term goals.

The first place to start as noted earlier is envisioning what your life would like in retirement. Take the time to write down your retirement goals. And understand it can evolve over time. 

Consider how much that lifestyle will costs. It’s good to understand that prices will increase and to factor that into your retirement budget. Additionally, other large expenses such as a mortgage and childcare may no longer exist. 

Then, add up the sources of income you’ll have in retirement. Calculate your retirement money from pensions, social security from the federal government, annuities from an insurance company, your investments in a 401k employer plan, the income stream from rental properties, and other investments such as dividend-paying stocks and income from business partnerships.

Finally, calculate your future income minus your expected future expenses. This will give you an idea of how much more you’ll need to pay for your retirement lifestyle.

Consider the following when calculating your expenses:

  • Housing costs such as rent or mortgage payments, maintenance, and utilities.
  • Healthcare
  • Day-to-day expenses such as food and transportation
  • Lifestyle expenses including dining, entertainment, travel
  • Life insurance and long-term care.

What’s the magic number for retirement?

Many financial planners recommend having $1 million to secure income for life. That is far more than Social Security will pay in monthly benefits. You can review your current SSA benefit payment here.

Now, learn how to calculate your financial independence number that can be useful in guiding you to your retirement number.  

Asset Allocation for Retirement

Asset allocation is a strategy recommended by investment professionals that helps you decide how much money to put in stocks, bonds, and cash when investing for retirement. The goal is to keep a balance among these 3 types of asset classes.

Most people who prefer a hands-off approach may choose a simple asset allocation model. This consists of 2 or 3 fund portfolios of index funds, mutual funds, and exchange-traded funds (ETFs) that make it easy to invest for retirement.

Basically, as you age your risk is adjusted to become more conservative with more fixed-income investments in bonds.

The following is a simple asset allocation recommended by T. Rowe Price based on age:

  • 20s: 90% to 100% stocks, zero to 10% bonds
  • 30s: 90% to 100% stocks, zero to 10% bonds
  • 40s: 80% to 100% stocks, zero to 20% bonds
  • 50s: 65% to 85% stocks, 15% to 35% bonds
  • 60s: 45% to 65% stocks, 30% to 50% bonds, zero to 10% cash/cash-equivalents
  • 70+: 30% to 50% stocks, 40% to 60% bonds, zero to 20% cash/cash-equivalents

As you get older, you’ll want to rebalance your portfolio to keep it in life with your risk tolerance. Working with an investment advisor or robo-advisor can provide the rebalancing you need. 

Investment Options for Retirement

Everyone is different, and a certain investment might be great for some people, and for others not so much. Depending on your retirement needs, the key is to choose investments that you feel comfortable with.

While you can do this all by yourself, it is recommended you talk with a financial planner to avoid potential critical mistakes that can cost you. A financial advisor, can help you determine your risk tolerance, discuss asset classes and investment choices, and help calculate your income in retirement.

Here are a few investment options you can consider for retirement.

1. Investments in tax-advantaged accounts

If you want tax-deferred or tax-free growth investments, then a great option is tax-advantaged accounts, like IRAs and 401(k)s. The main advantage of these two is the tax breaks and reduced tax liabilities.

For instance with 401ks, you can contribute pretax income into target-date funds that may include employer match. Basically, pre-tax retirement accounts let you deduct your contributions from taxes now until withdrawing in retirement. On the other hand, Roth IRAs let you contribute money that you’ve paid taxes on already. When you withdraw money from Roth accounts in retirement, it’s tax-free.

The downsides are the annual contribution limit, but until you reach retirement you could save a lot of money. So in the end, it will pay off. 

Find the best online brokerages for your retirement accounts.

2. Investments in rental properties

A good investment for retirement is buying property/properties that you can rent. These types of investments will provide you with a monthly steady income in your retirement. But you do need to be conscious of the costs of property maintenance and repairs when you sign up for this. For those who prefer less work, investing in REITs or Real Estate Investment Trusts may be a better option.

3. Investments in dividend-paying stocks

Historically the stock market has provided strong long-term average returns albeit in an up-and-down fashion. However, some investors prefer to lock in profits sooner through dividend payments.  

When you invest in a company that pays dividends, you can be provided with a constant share of the profit they make. You can receive the money in monthly, quarterly, or annual payments in form of additional stocks or cash. 

Since most dividend-paying companies are established, their stock rarely jumps in value compared to newer companies that do not pay dividends.

4. Investments in bonds

In comparison with stocks, bonds don’t fluctuate as much in price. When you invest in bonds, you lend money to a company or a government agency, and in return, you will get an annual payment at a predetermined interest rate. When the term comes to an end, you get back your initial investment. It can happen in between one and 30 years, depending on the type of bond you bought. 


It’s important to plan for retirement because it will happen by choice, age, or health. You have many options as discussed in this article. Start with tax-advantaged accounts such as your company’s 401k and through IRAs. Then, proceed to open a taxable brokerage account to invest in stocks index funds, REITs, and more. And keep in mind, when planning your retirement income consider your social security monthly benefit along with any insurance annuities. 

No matter what your retirement plan looks like, you have to keep in mind that as you get older it’s better to get more conservative since you’ll have less time to recover from a financial crisis. That includes a diverse nest egg comprising of a diverse portfolio and choosing investments with a lower risk. If you’re worried about investing, remember that any investment has its risk, but we think you should do it anyway. Read more about why, in this article.

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