Learning how to set retirement clocks is easy. The actual time horizon determines how you’ll invest your money. Here we will look at various time frames and which investments are best.
Retirement clock for your twenties
If you’re in your twenties, you have got it made. With more than forty years before retirement, you can afford riskier investments that often yield higher results. Consider investing in index stock mutual funds serving the US and overseas markets. Pay the maximum contribution on your 401k and IRAs and you will have a bundle at retirement.
Retirement clock for your thirties
If you’re in your thirties, you have less than forty years before retirement. While that is still a significant amount of time before retirement, your investment options are slightly different. At this age, you should still focus 80% of your money on aggressive investments such as stock mutual funds, but may begin considering bonds or a balanced mutual fund that offers the majority of its holdings in stocks with a smaller portion in bonds. This will offset changes in either market and provides a more balanced portfolio.
Retirement clock for your forties and fifties
These are the peak earning years and will require even more conservative investment options. While investing in stock mutual funds is still suggested bonds may begin to play just as strong a role. Your portfolio may now be 50% stock mutual funds and 50% bonds. In addition, if your earnings are significant enough and you have invested the maximum toward your retirement accounts, you may consider municipal bonds. Municipal bonds offer tax-free income for a specific term. As long as you purchase general obligation funds with an AAA rating, you should be fine.
Retirement clock for your sixties and beyond
If you are in your sixties or older, you have to take a conservation approach to your money. While you can still invest a portion of your savings in stock mutual funds, the majority of your investments should be in cash and possibly fixed annuities. Fixed annuities are investments made by insurance companies that offer a set maximum yield for the first few years along with a minimum yield thereafter. Annuities offer income and usually provide a higher interest rate than your typical CD. Many seniors enjoy this investment because of the income and the conservative nature of the investment.
It is never too late to set your retirement clock. While saving for retirement is important, selecting the right investment at the right time will make your money go farther.
Source: Weigold, Frederic C. ed. "The Wall Street Journal Lifetime Guide to Money."