Clients often come to our retirement plan advisors with questions about their retirement nest egg; how will they make their savings last and avoid outliving their retirement funds? These questions are understandable.
No one wants to imagine running out of money during what's supposed to be their golden years -- and the transition from living on paychecks to living on savings can take some adjustment. Our retirement investment advisors offer these 5 keys to holding on to that nest egg.
1. The Key to Wealth Management: Diversify! Diversify! Diversify!
While every savvy investor knows that it's essential to not put all of those proverbial eggs in the same basket, not every investor understands exactly what a diversified portfolio looks like -- and that's where your retirement plan advisor comes in handy. A truly diversified portfolio includes a careful mix of investments both within and across asset classes. This reduces correlation, or the tendency for securities to move together, and thus reduces exposure to unnecessary risk and decreases the potential negative impact of market volatility.
2. Ask Your 401k Advisor About Employer Match
Many employers offer a match program and if you're not taking full advantage of it, you're throwing money away. Ensure that you're contributing the optimal amount to your 401(k) account in order to grab all that your employer offers; a common figure is matching half of employee contributions up to 6% of salary, but formulas vary by workplace. Review your contribution amounts with your 401k advisor and make any necessary changes to optimize the match program.
3. Work with Your Wealth Advisor to Understand What You're Buying
Truly informed decision making takes place when you've got all of the information you need to understand exactly where your money is going. Sit down with your wealth advisor to obtain a clear picture of:
The costs and loads associated with investment products
How your portfolio is structured to manage risk
How your portfolio's asset allocation includes non-correlated securities
Any restricted securities that may carry penalties
How fund expenses are managed
4. Leave Risky Investments Out of Your Investment Planning
During retirement, your focus shifts from capital appreciation to wealth preservation. While, of course, risk and reward go hand-in-hand, now's not the time to add unnecessary risk to your retirement plan. As a general rule, you'll want to avoid risky investment such as:
5. Other Considerations for Strategic Financial Planning
You'll also want to consider a few other strategies to maximize your next egg. Keep your time horizon for holding onto certain investment vehicles in mind and make adjustments accordingly; for instance, at age 60, you should be exposed to less risk that you were at age 20.
You may want manage some retirement investments outside of your IRA or 401(k). Consider creating a savings account that holds enough for six months of expenses. Don't forget to budget for big ticket items, such as cars, appliances and home repairs, too, so you don't have to draw down your retirement accounts.
Finally, commit to not touching your retirement accounts until you're actually retired. Remember, your retirement accounts aren't bank accounts, and shouldn't be treated as such! Meeting regularly with a trusted wealth advisor will help keep you on track -- and keep that nest egg healthy.