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Saving money isn’t enough—if you want to retire comfortably, you’re going to need to invest those savings, too.

By Kristine Gill
April 01, 2021
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If investing for retirement feels overwhelming, you're not alone. There's a lot of strategy that goes into making your money grow in ways that are both safe and lucrative—and that's after you've saved that money in order to invest it in the first place. If you're struggling with finding a good portfolio mix or worried about whether you're on track, these experts have suggestions on what to keep your eye on as you continue to invest with retirement in mind.

Save more than you think you’ll need

A common suggestion you’ll hear when saving for retirement is to aim for replacing 70 percent of your current income. But financial advisors caution that retirement is not cheaper than living while working.

“That’s a myth because what are you going to stop doing in retirement that you’re doing now?” says Annette Hammortree, a retirement income certified professional and owner of Hammortree Financial Services in Crystal Lake, Ill.

Aiming for just 70 percent won’t let you purchase a new car down the road or vacation on a whim with family. Instead, Hammortree suggests that you consider what kind of a lifestyle you want and save for that.

“It makes more sense to look at what you spend your money on now and what you’ll want to spend money on in retirement,” she says.

Factor in the fact that Americans are living longer these days, and that your money will need to retain its value as inflation continues.

“At only 3 percent inflation, the value of your money will be cut in half in 25 years,” says Terry Savage, a nationally syndicated financial columnist and author of The Savage Truth on Money.

Many retirees will purchase annuities to ensure that their money will last their lifetime. That’s great, but inflation will still eat away at the spending power of your annual annuity, Savage points out.

“So, even if you spend a little money on an immediate annuity, you also want to set aside some money for growth,” she says. “And then you’ll need some of what I call ‘chicken money’ on the side: CDs, savings. That’s your sleep-well-at-night money, so that you have the discipline to stick with your investment plan.”

Find a good portfolio mix

When it comes to your retirement investment vehicles, you have several options. The mix you choose is up to you, but all professionals agree you shouldn’t keep all of your eggs in one basket.

“I normally recommend that 50 to 60 percent of your income is coming from guaranteed income sources: pensions, Social Security, annuities,” Hammortree says. “It has to be income you can’t outlive, no matter what happens.”

Shelly-Ann Eweka, director of financial planning strategy at financial services company TIAA, points out there are also such things as employer plans and 403(b)s at universities or nonprofits, etc.

“Never leave an employer match on the table,” she says.

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Once you’ve opted for a good mix, Eweka says you need to find out what kind of an investor you are and match your approach to fit your target savings goals.

“Figure out what is your risk tolerance and the time horizon,” Eweka says. “We saw the extreme volatility last March and we paid attention to it because it was on the down side, but if you understand who you are as an investor, the times when the market is that volatile won’t be new or abnormal. But if you don’t understand who you are, you might make the decision to make sales at the wrong time.”

Whatever you do, try to start early and plan to adjust your strategy as you go.

“People need to understand that if they start in their 20s and 30s, they’re getting a significant advantage with time compounding their money,” says Steve Bogner, managing director at New York City–based wealth management firm Treasury Partners. 

Start young and adjust as needed

Starting to invest and save early on gives you a better chance of recovering after major market mishaps. Start later on, and you’ll need to trust the process as you watch every change in your portfolio.

As you approach retirement age, Hammortree suggests switching some investments to bonds so major market swings can’t drain your funds in the 11th hour.

“You can’t wake up one day and decide to retire in six months then start to shift your portfolio. You need to start doing that three to four years in advance,” she says.

As you approach retirement age, shifts in the market can have a bigger impact on your investments because you have less time to recover from them. Hammortree’s expertise lies in timing those shifts in anticipation of market cycles, and trusting the process through rough patches.

“Last March, when COVID hit and the market dropped, we got a lot of calls from clients who asked, ‘Can I still retire?’” Hammortree says. “I’ve been doing this for 35 years and there have been so many crises in the market. I have nerves of steel. I tell my clients to steal my confidence. There will always be another crisis, but the markets will behave.”

If you’re still young and thinking ahead, Hammortree says a more aggressive approach will likely work long-term.

“Younger people can take more risk in the market,” she says. “That’s where your wealth will accumulate.”

Bogner says that, while COVID impacted the markets, the effect was not as drastic as the last recession. Trusting the market to recover will be something future retirees need to learn.

“We haven’t had a significant market pullback in a decade,” Bogner says. “There are people who have entered the workforce in 2009 and 2010 and they haven’t really seen a significant market pullback yet.”

Along with learning your own behavioral risks and comfort level with the market, Eweka cautions that there could be cognitive risks to consider as you age.

“You don’t want to be in a place during retirement where you have to do a whole lot of work to maintain your investments, because at some point in retirement, a lot of folks deal with cognitive risk,” she says. “We recommend that you try to consolidate your accounts.”

Trust the professionals

Chances are, if you’re reading this, you aren’t a retirement planning expert. And while it’s great to learn all that you can about these strategies, you’ll still want to get help from a professional you can rely on. Skip the advice from friends, family, and online acquaintances promising get-rich-quick methods—the recent GameStop stock rush showed just how unpredictable the markets can be, but also emboldened novice investors to make quick decisions.

“A word of advice: Don’t invest based on social media posts,” Eweka says. “Investing is like gambling, and for all the good stories you hear, there are many more bad stories. Instead, leave it to the professionals.”