How to Invest for Retirement Wisely

Everyone wants a comfortable retirement, but it takes a strong savings habit and a smart investing strategy to reach retirement with enough in the bank. If you want to be able to enjoy your retirement years, you’ll need to know...
Business Owner

Everyone wants a comfortable retirement, but it takes a strong savings habit and a smart investing strategy to reach retirement with enough in the bank. If you want to be able to enjoy your retirement years, you’ll need to know how to invest for retirement wisely. Consider these five tips when saving for retirement:

Set Your Goals

Before you can think about retirement, you need to determine what your financial goals are and then formulate a plan to make it happen. There are three essential elements to take into consideration as you begin to set your goals.

Keep these three things in mind as you start thinking about what retirement lifestyle you want to live. The primary focus is on how much money you will need to live comfortably without enduring financial strain. Although some financial experts will provide a percentage of your current income that they feel you will need for retirement, there is no right or wrong number. The dollar amount you need for retirement is a matter of personal preference.

Consider Retirement Costs

When determining what your retirement costs will be, you need to look past the fun trips to parts of the world you’ve always dreamed of and focus more on the day to day expenses. Look at things such as your living expenses, health care expenses and cost for leisure activities you may take up. Total all of these things up to get an idea of how much retirement will cost you.

Determine a Savings Goal

The two main factors in deciding on a savings goal are how much you save and how often you are saving money. Start by taking your age and any current money you have set aside for retirement into consideration. Next, decide how much money you can comfortably put into your retirement savings each month. Strive to reach that monthly savings goal even if you have to cut back on a few things that are currently part of your daily life.

Your monthly savings goal and estimation of retirement costs will determine how much money you may need for retirement.  Does this add up to enough to cover your retirement costs? If not, know that you’ll need to save more now or lower your retirement goal. It is just an estimated figure. By the time your retirement rolls around, one or more factors could change. For example, your home may be paid off before you retire. It would then significantly reduce your living expense estimation in your retirement costs calculations

Understand Your Risk

Every investment activity comes with a certain degree of risk. You are going to have to be willing to accept some level of risk to establish a retirement investment account. Risk refers to weighing the chance of losing your investment money against the financial return on your investment. Remember that the higher the risk an investment account has, the higher the rate of the return on that investment.

Risk maintains a close relationship with volatility, which looks at how liable an investment is to change rapidly and unpredictably. The time frame you have before entering into retirement works along with these two elements to determine if you are going to be a conservative investor or an aggressive investor. Consider these three different time frames when determining the risk level associated with your investment:

  • Short term – a time frame of fewer than five years.
  • Intermediate term – a time frame of five to ten years.
  • Long term – a time frame more than ten years into the future.

If you do not need access to your retirement dollars anytime soon, you can act as an aggressive investor. That means you can assume a higher risk on your investment and withstand short-term volatility in the financial market without losing your money. A moderate level of risk is present when you are investing on an intermediate time frame level.

On the other hand, if you will need to have access to your investment funds soon, you are a conservative investor. Your investment risk is small as you can not afford to endure any long-term market volatility taking place. The risk of losing your investment money is high and, therefore, you need to take a conservative approach to how you handle your retirement account.

Make an Investment Choice

By this point, you have a good idea of your retirement investment picture. You know how much money you are going to put away each month, and are comfortable accepting some degree of risk with your investment. Now you need to decide how to invest your money.

If you are a conservative investor since your retirement date is close or you are personally risk-adverse, you’ll want a larger allocation of bonds and other less volatile investments. If you are an aggressive investor with a long time horizon, you’ll want a larger amount of stocks so your nest egg can continue to grow.

You also need to find the best investment vehicle for your retirement money. There are several places you can select:

  • Employer Plan – It includes a 401(k) or a 403(b) plan where a portion of your paycheck goes into a retirement fund account, and your employer matches your contributions. These accounts make up over 90 percent of retirement plans in the market today.
  • IRA – You can invest pre-tax in a traditional IRA, and post-tax in a Roth IRA. An IRA is the most popular type of individual retirement plan accounts.
  • Taxable Account – It is a general investment account that you can use once you’ve maxed out your other options.

Market Timing vs. Time in the Market

Market timing refers to the practice of monitoring the market and pinpointing the ideal time to become active in the market and when to back out to avoid being subject to a high level of risk and market volatility. Financial analysts spend a considerable amount of effort monitoring market trends, analyzing the market activity and predicting what will happen next. The goal is to exit the financial market with the highest return on investment in hand.

Very few financial analysts are able to reliably predict the ups and downs in the market, and the average investor is terrible at market timing. By sitting out of the markets, you may miss an ideal opportunity to reap the benefits of the peak performance activity in the market.

Don’t try to time the market. Instead, think about how much time your investments will have in the market. As your investment remains in the market untouched, your dollars will begin to accumulate interest. Eventually, your interest will compound and you’ll continue to build wealth at an even faster rate.

Focus On What You Can Control

One of the greatest lessons you can take from having a retirement investment account is the understanding that there are some things that are just out of your control. You have control over how much money you start your investment account with and how long you wait before beginning to make withdrawals on your account. Other factors such as the current volatility level of the market are beyond your control. Rather than stress over the things you can’t control, you need to celebrate the things that you can control instead.

Here are a few things that you may be able to control in regards to your retirement investment account:

  • Fees – Opening an investment account requires the services of a financial analyst, broker or planner to help you with the paperwork. Your fees should never be more than 1 percent of your current portfolio balance. You can negotiate a lower price with your broker, analyst or advisor and possibly receive that discount rate.
  • Diversification – To diversify means to spread your investment accounts across the many types of investments. You can invest in domestic and international markets, and your portfolio can include a variety of stocks, bonds, and IRA accounts. The choice on whether or not to diversify belongs to only you. No one else can make this happen for you.
  • Assistance – Being actively engaged in the investment market can be confusing or overwhelming at times. You control whether to navigate these waters alone or bring someone onboard to help you out. Ask for help with monitoring your investment accounts or figuring out what step to take next.

Each of these items gives you some level of control over what will happen or how it will happen in regards to your retirement investment accounts. Now take a look at some things that may be beyond your control:

  • Control Time – You can not control the volatility of the market on any given day. Therefore, it makes sense to understand that you can not control the level of risk that your investment account faces at any given moment while in the market. Any attempt you make to do so will most likely result in you receiving a lower return on your investment.
  • Make Changes – You should never try to make changes to your retirement investment account when you are under emotional duress. These emotions won’t last forever and leave just as quickly as they start. Changes you make during the ‘in between’ time can impact your return on investment earnings. When you make changes due to personal emotions, you can not control the consequence of that choice.

It is always best to focus your time and energy on making the most of your retirement investment account. Avoid second guessing yourself or your financial advisor. Take time to learn how the financial market works and plan accordingly.


To invest successfully for retirement, you need to have a clear picture of what your goals are before you start investing your hard earned money into the market.  Decide if you are going to have a short, intermediate or long-term time horizon so you can understand your fundamental level of risk that you will be assuming as well.

It is a good idea to reevaluate the current standings of your retirement investment account at least once every fiscal quarter. Review your account, paying careful attention to your balance and how that balance works according to your goals. Make changes to anything that no longer aligns with your goals. Readjust your savings amount or rethink the retirement lifestyle that you envisioned earlier.

Remember always to ask for help or clarification on anything from how to rebalance your account, increasing your savings amount or selecting a different savings account type. A financial advisor, broker or analyst works for you and serves to make your financial world a little easier.  Take this information to heart and start paving the way towards a relaxing life of retirement!