One more reason to start investing: to be able to afford a comfortable retirement!
The term retirement portfolio is a fancy way to refer to a collection of investments designed to provide income for a person’s retirement years. This can include a 401k, IRA, stocks, real estate, and other similar investments. In fact, some people have a small portfolio and don’t even realize it because they have collected funds and assets in piecemeal fashion and never actually organized them into a cohesive portfolio.
Things To Consider When Building Your Retirement Portfolio
#1 Put Your Retirement Plan in Writing
It is important to begin by assessing your expected retirement needs, anticipated lifestyle, and current assets. Before you can adequately evaluate the essential components you will need to build your portfolio, you have to know where you are beginning and what your final goal is. Let’s take a look at the major components that make up a retirement portfolio:
- Pension
- 401k
- IRAs
- Stocks, bonds, mutual funds, certificates of deposit, and treasuries
- Real estate
- Social Security Income
You may well have some of these items in place. So to start out, you need to take a written inventory of what you have in place. This will give you your starting point for your map to retirement freedom.
#2 Know Your Financial Goals
Once you know what your starting point entails, you can decide what you will actually need to have in place to achieve your retirement goals. There are certain items that should be put in place as quickly as possible.
If your employer offers a pension or 401k program, especially if they provide fund matching, you should absolutely — at the very least — participate up to the match point. This is a way to immediately double your investment. Find out if you qualify for an IRA; in particular, check into the Roth IRA. There are many benefits specific to the Roth, including the fact that all contributions can be withdrawn at any time tax free as the contributions are made after taxes.
#3 Save For Competing Goals
Before saving for retirement, make sure you have higher priority financial goals addressed such as saving for things you may need for the shorter term. For instance, save for an emergency fund by keeping around 6 to 9 months’ worth of expenses in a safe, liquid account.
Also, if you are renting a home, it is wise to save up towards purchasing your own home. Instead of throwing money away on rent, you will be building equity in something of your own. There are also several tax benefits that go along with home ownership, including tax-deductible interest and a one time capital gains tax exemption if you sell.
Other common goals to save for include your children’s (or future children’s) educational funds. But take note that if you have to decide between saving for retirement vs your kids’ college education, you should prioritize towards retirement saving and investing.
Once your goals have been determined, you can then address them by investing in various stocks, bonds, mutual funds, certificates of deposit, and other investments that are generally purchased through a brokerage account. Know that it’s important that we grasp investment risk and that we practice proper asset allocation in order to develop a well diversified portfolio that affords us financial stability.