The recent economic crisis set many retirement portfolios back a few years. If you are young, your portfolio probably still has time to recover. But if you are near retirement age, you may have to rethink your timing. These tips can help you build a portfolio and financial plan to weather the next stage of your life.
1. Reassess your portfolio. The recession and subsequent stock market decline showed many people that their portfolios may not have had the right asset allocation for their risk tolerance and investment needs. Now is a great time to sit down and determine the asset allocation that best meets your needs and work on getting your portfolio in line with your target allocation.
2. Understand your risk tolerance. You need to understand how much risk you are comfortable taking on as well as how much risk you should take on. An investment portfolio consisting of 100 percent stocks is probably too risky if you are at or near retirement age. Most people should have a balance of stocks and more stable investments such as bonds, CDs, and REITs.
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3. Seek professional guidance. It’s always a good idea to get a professional opinion on something as important as retirement. You don’t necessarily need to hire a financial planner to manage your entire portfolio on a full-time basis, but you may find it helpful to have a financial professional review your investments and estate plans. A professional can help you understand the details, such as Roth IRA withdrawal rules and similar tax issues related to your retirement and estate plan. A second set of eyes can help you ensure you didn’t miss anything big and that you have everything in place for a successful retirement.
4. Risk management and insurance. You want to make sure you have enough insurance to help weather any storm that may arise. This includes health insurance, disability insurance, long-term care insurance, and life insurance. You should also develop an estate plan, especially if you have a spouse or any dependents that will rely upon your portfolio for income when you pass away.
5. Delay retirement. You may not want to hear this, but delaying your retirement for even a year or two can help set you up for a more successful retirement. Starting retirement off with a larger investment portfolio and less debt will go a long way toward ensuring you won’t run out of money in retirement. There is an added benefit if you will accrue more service time toward a pension or other retirement benefits.
Retirement investments generally don’t come with any guarantees. But smart planning and diligence can set you up for a successful transition.