Investment Strategies for Maximizing Your Retirement Portfolio

Having a retirement portfolio is essential if you want to be able to retire comfortably and do the things you want to do when you’re no longer working. Social Security payments are unlikely to be sufficient to pay your expenses in retirement. With enough retirement income, you’ll be able to travel the world, spend more time with your family, or engage in the activities and hobbies that you love without worrying about money.

The key, of course, is understanding which investment strategies to use now to maximize your retirement savings. Whether you’re young and just setting up your first retirement account or getting close to retirement age, here are some strategies and pointers to help with retirement saving now – and to provide you with the retirement income you need to be comfortable later.

What Are the Key Components of a Strong Retirement Portfolio?

Retirement portfolios are essential for anybody who wishes to retire, but what are the most important components to maximize your earnings and balance your risk? Here are some things to think about:

• Asset allocation is all about balancing your investments. You don’t want to have too much of any one asset or asset class. If you do, a significant downturn or price drop could wipe out your savings.
• Diversification is equally as important within asset classes. For example, you might have 70% of your earnings in stock, but within that, you’ll need to buy stock in a variety of industries and sectors to balance your risk.
• Investing in a mix of high-risk, medium-risk, and low-risk investments allows people to grow their savings while keeping their risk in a comfortable range. For example, your portfolio might include growth stocks, dividend stocks, bonds, a life insurance product such as an annuity, and a mutual fund.
• Regular review of your portfolio is a must. One of the most common mistakes that retirees make is not reviewing their portfolio and reallocating assets as needed. This is one area where working with a financial advisor can help.

Even safer investments require research. Before buying a bond or while considering mutual funds, investors should read about each potential investment or talk to a professional about whether it’s a good addition to their portfolio.

Strategy: Buy Enough Stocks to Maximize Your Earnings

You might be wondering: What role do stocks play in retirement savings? The short answer is that stocks offer the most significant earning opportunity among the various asset classes you should have in your portfolio. Retirees need cash to pay their expenses, and buying stock in the right way can provide it.

One rule of thumb to use is to take your current age and subtract it from 100 to determine what percentage of your retirement portfolio should be invested in stocks. So, if you’re 40, 60% of your portfolio should be stocks, and if you’re 55, 45% would be the right percentage. Some experts recommend increasing the starting number to 110 to adjust for a longer lifespan.

The type of stock you buy plays a key role in determining how much you can earn. Dividend stocks provide regular income but typically don’t experience substantial growth. Investing in emerging technologies means taking on more risk with the potential of significant rewards.

Strategy: Take Your Retirement Time Horizon Into Consideration

The next thing to consider is your retirement horizon, which is a measure of how old you are now compared to when you want to retire. A 30-year-old woman who wants to retire at 65 has a 35-year horizon. A 50-year-old who wants to retire at 60 has a 10-year horizon, and so on.

This is where asset allocation and risk both become important. A person who wants to retire early may need to fast-track their investments and savings and take more risk to get to where they need to be. Someone who’s nearing retirement age should have a different strategy than a college graduate just starting their first job.

Strategy: Keep Cash on Hand

One personal finance goal that people should prioritize into and throughout retirement is having cash on hand. Prior to retirement, the primary reason for an emergency fund might be to protect against a job loss or unexpected expenses. Post-retirement, the main benefit of having cash on hand is that you can avoid withdrawing investments during economic downturns that may impact the value of your holdings.

We suggest reviewing your cash balance at the beginning of each year. Some things that can supplement your income and provide cash include:

• Social Security payments
• Pension payments
• Annuities
• Rental income

You should hold your cash in an interest-bearing account, such as a money market or high-yield savings account.  Some experts recommend having two to four years of accessible cash in short-term CDs to maintain liquidity and get through any significant market downturn.

Strategy: Build a Bond Ladder

Having a predictable income in retirement can reduce stress and make financial planning and decisions easier than they would be otherwise. A bond ladder can provide that needed predictability. 

Building a bond ladder is easy. All you need to do is purchase bonds or bond ETFs with different maturity dates. If you were starting your ladder in 2024, you could create a ten-year ladder by investing in 10 bonds or bond ETFs, with each one having a maturation date in a different year. The first would mature in 2025, the next in 2026, and so on. 

Part of a bond ladder strategy is determining what to do with your earnings from each bond as it matures. One option is to reinvest in a new bond to keep the ladder intact. Another is to use the money in the event you don’t have enough cash on hand.

Strategy: Manage Tax Implications of Your Investments

Maximizing your earnings and savings isn’t just about which investments to buy and how to balance your risks. It’s also about how much you’ll pay in taxes and, just as importantly, when you’ll make those tax payments. With that in mind, let’s talk about what strategies can help manage tax implications on retirement savings.

The most obvious answer has to do with the type of retirement savings account you choose. Traditional IRAs, for example, allow investors to make contributions on a pre-tax basis. If you’ve got a Roth IRA, you’ll make contributions on a post-tax basis. With the former, you’ll save money now and be required to pay taxes on all withdrawals and earnings. With the latter, you’ll pay taxes now and be able to make withdrawals of your contributions and all earnings without paying taxes.

There may be something to be said about choosing the pre-tax option because you can contribute more now and you may have lower income in retirement, which may mean you’re in a lower tax bracket. Talking to a financial advisor can help you plan your taxes and choose a strategy that’s right for you.

Strategy: Plan for Inflation

Inflation has been a concern for all of us, and it makes sense to plan for inflation as you structure and manage your retirement portfolio. Here are some tax strategies to consider.

• Invest in Treasury Inflation-Protected Securities, or TIPS. These securities are indexed to inflation, meaning that you won’t lose value if inflation is high.
• Diversify your income by buying real estate to get rental income, monetizing a hobby or craft, or adding dividend stocks to your portfolio.
• Buy an annuity that’s indexed to inflation. You’ll pay slightly higher fees, but you won’t need to worry about your expenses reducing the buying power of your withdrawals.
• Monitor your expenses and reduce where you can. That might mean downsizing to a smaller house or simply reducing unnecessary purchases.

On a larger scale, you may want to calculate your annual living expenses with inflation in mind and adjust your retirement savings goals accordingly. That’s something a financial advisor can help you do.

Strategy: Work with a Financial Advisor

We understand that making investment decisions and managing a retirement portfolio might be a daunting task or something you would simply prefer not to do. It’s for that reason that Leaders Credit Union has partnered with LPL Financial to provide several services that can help you maximize your earnings. These include:

• Managed/advisory investment accounts
• Guided wealth portfolio
• LPL financial statements

If you choose to, you can work with one of LPL’s Financial Planners to review your existing portfolio, balance your risk, or build a brand new portfolio. Getting professional advice is wise because it demystifies the investment process and gives you access to the knowledge and guidance you need to make the best decisions about your portfolio.

Build Your Retirement Portfolio with Help from Leaders Credit Union

Maximizing your retirement portfolio is the best way to work toward a comfortable and enjoyable retirement. The strategies we’ve outlined here can help you do exactly that, providing you with the cash and security you need. Plus, you can check our Deep Dive into Investments for extra guidance.

Do you need help building and maximizing your retirement portfolio? Leaders Credit Union provides a variety of investment services. As a reminder, the NCUA insures deposits at credit unions but doesn’t insure investment accounts. Read about our services and open an account today.