Investing in Retirement: The 4 Golden Rules

Posted on July 15th, 2022
Finance a Venture Retirement

Retiring can feel like an overwhelming change in your life. If you’ve been planning for it properly, money is one thing you don’t have to worry about! However, if you’re nervous about managing your retirement account, know that there are strategies to ensure your retirement savings last. In this article, we’ll go through 4 rules for investing in retirement so that you can make the most of your golden years.

1. Don’t be too conservative

Being too conservative might seem impossible, but when it comes to retirement investments, it is easier to do than you might expect. 

Today, longevity is increasing, and retirement can often last much longer than it did even 30 years ago. According to the Social Security Administration, a 65-year-old man can anticipate living to almost 85 years old. Similarly, 65-year-old women often live past the age of 86! Remember, these ages are just averages, too; many people live well into their 90s in today’s world.

Living longer means needing a bigger retirement fund when you decide to retire, as Social Security can’t pay for everything. The average Social Security benefit is only $1,657 per month as of January 2022, replacing only around 40% of the income you earned while working. This means that sticking with the safest investments will probably not earn enough for you to get by.

Investments like bonds, designed around their guarantee of returns, often fail to produce as high of a return as riskier investments like stocks. However, just because a stock is riskier doesn’t mean you should shy away.

And then there are loans. If you want to build equity in a home, avoiding loans or other credit-building financial tools can actually hurt you in the long run.

It’s important to educate yourself on the benefits of utilizing a balanced portfolio that is fully diversified. Homeownership, stocks, and other types of investments are just some ways you can do this. Remember, investing is about mitigating your risk of loss and taking full advantage of all those gains in your retirement.

2. Don’t be too aggressive

In contrast to the previous point, being aggressive can be equally problematic. Remember, investing is about balance and mitigating risk through diversification. Putting all of your eggs into high-yield accounts can mean losing everything if these investments turn sour. 

It may be tempting to try and maximize your returns, especially if you’re starting later in life, but achieving security in retirement means finding the optimal allocation of your assets. 

Additionally, you should find ways to diversify your portfolio and mitigate risk. Today, many employers offer different ways to invest in their employees through benefits. When saving for retirement, you should check to see what retirement offers your employer has. For example, companies that match 401(k)s can help reduce the amount of aggressive saving you have to do and your reliance on Social Security.

Ultimately, these first two points rely on understanding the proper mix of investments necessary to sustain a healthy and well-balanced portfolio. When you properly manage your risk, you’ll fare better than your peers in retirement.

3. Consider maintaining a cash “bucket”

One risk you also have to consider in retirement is the sequence of returns risk. It means the possibility of the market failing when you enter retirement. If you grew up during the Great Recession or lived through it, you might remember how many people had their retirements taken away in 2008 because of the market crash.

It’s normal for markets to have their ups and downs, but when markets take a nosedive at the start of your retirement, it can make retiring that much harder. Some people even have to come out of retirement in scenarios like this. One way to mitigate this risk is to utilize a cash bucket account. 

A cash bucket works similarly to an emergency fund, except it’s much larger. A cash bucket usually contains two to three years’ worth of living expenses. When you have cash saved up, you can avoid withdrawing money from your investments when the market goes bad.

Remember, though, keeping excessive amounts of cash can also be harmful. Cash, unlike investments, tends to lose value over time due to inflation. When planning your retirement, it’s important to keep these things in mind.

One way to get the best of both worlds is to plan your investments based on market performance. When the market performs badly, draw money for expenses from your cash bucket. It will allow your investments time to recover. Then, when the market is performing well, you can draw funds from your investment account and then use some of those market gains to refill your cash bucket. 

Annuities can be another excellent option. Some annuities come with a 3% guaranteed interest rate on your money, meaning you can earn money while still in retirement.

4. Make sure you’re on the same page as your spouse

Lastly, if you’re married, it’s important to ensure that you and your spouse have similar understandings about retirement. If you’re unmarried, divorced, or widowed, make sure close relatives and other interested people in your life understand your financial plans. This includes any of your investment account managers too.

Unfortunately, the process of aging means that people can pass on. If you rely on your spouse or someone else to manage your investments, you should create contingency plans for their passing. 

For example, do you have a spouse looking to buy more crypto or invest in DeFi? These investment decisions can play a huge part in your retirement years, and you must understand where all of these investments are held and how to gain access to them.

Conclusion

Following these four golden rules for retirement will help you avoid risk and maximize your returns in retirement. It’s critical to plan ahead and avoid taking unnecessary risks while also maximizing your ability to save.

Kiara Taylor

Kiara Taylor

Kiara Taylor is a financial writer and Research Analyst. She is an expert at risk-based modeling having worked in the finance vertical for the past twenty years. She has a Master's Degree in Finance from Ohio State and has worked at Fifth Third Bank, J.P. Morgan and Citi in emerging markets and equity research.

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.
Categories

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More