Putting all of your nest eggs into one basket and hoping to hatch a golden goose is a risky way to plan for retirement. Diversifying your savings and investments will help you create multiple paths to developing more security. Working with a financial planner, you can create a variety of long-term strategies and tactics that will help you create a portfolio of assets that gives you the right balance of risk and reward.
Diversification helps you cover pre-retirement living needs while meeting long-term goals.
Meet with a Financial Advisor
As with any trip, a retirement journey requires a specific road map to help you effectively reach your destination. Although you might not be able to afford a long-term financial advisor or have enough assets to interest one in taking you as a client, consider paying for a consultation to get you started. A financial planner will help you choose the right paths to creating a retirement plan, including advice on when to shift your assets as you age and your financial picture changes. Develop a comprehensive financial plan, which is a retirement strategy that includes using tactics such as life insurance, tax planning, real estate, investments, 401(k) and Individual Retirement Account contributions and estate planning.
Retirement Account Contributions
Depending on your financial situation, contributing to a 401(k) or IRA will help you increase your retirement savings. Your contributions are tax-free until you withdraw them, allowing you to begin earning income on these contributions. You not only put more money into your savings because you’re not paying taxes on the money, but you earn interest that should far outgain the taxes you eventually pay decades from now. If your employer offers a 401(k) contribution match, you double your money.
Life Insurance
Unlike car or homeowners insurance, some life insurance policies pay you a benefit even if you never make a claim. Different life insurance policies, such as whole, term, universal and annuities, provide different levels of protection, with some earning interest and providing a return at the end of the policy. Talk to your auto or homeowners insurance company if you don’t carry life insurance, or discuss with your life insurance provider different policies that fit into a retirement strategy.
Real Estate
The real estate crash that began in 2007 made investors re-think the safety and value of housing as an investment. Depending on your ability to buy a home at a low interest rate in a stable area, owning a home might be a wise choice for you. Owning your house when you retire eliminates rent or mortgage payments during your post-work life. If you save money owning instead of renting during your lifetime, you can use those savings to pad your retirement investments.
Investing
Putting your money into stocks, precious metals, bonds or other securities can be very risk, especially if you try to cherry-pick winners on your own. A mutual fund might be a good option to help you diversify your retirement strategy. Working with a financial adviser, you can set the level of risk and return you want, changing it over the years as your financial picture changes.
Budgeting
Without a budget, it’s impossible to see how every little expense affects your long-term financial situation. If you and your significant other save $40 each month by cutting out one trip to the theater and snuggling on the couch with a bowl of microwave popcorn instead, you’ll save more than $500 each year. Over the course of 40 years, that’s $20,000 plus interest you can add to your retirement. Watching your discretionary spending, including dining out, entertainment, and impulse purchases of clothing or music can save you thousands each year without cramping your style. Use heating, cooling and water efficiently around your house and you can plan on many more rounds of golf, romantic dinners and few exotic vacations when you retire.
Tax Planning
The less you pay Uncle Sam each year, the more you’ll have to enjoy with Mr. or Mrs. Right in your golden years. Talk to a tax expert about filing jointly or separate, taking standard deductions vs. itemizing, reinvesting capital gains from your investments, funding a health savings account or contributing to a 401(k) or IRA account.