Investment Strategies In Relation To Retirement Age

A solid and reliable retirement plan is critical in guaranteeing a comfort in your golden years. Investing in a smooth retirement is an undertaking that should ideally commence as soon as one begins a career. However, getting it right is just as important as making the investment itself. During the 2008 recession, there were incidences of blue chip investments going to waste and millions losing their life savings.  You may be asking what the right investment strategy is for you, should you invest in bonds, in forex, in stock? If so what kinds of bonds, stocks, currency pairs and when?

It goes without saying that there is no correct investment for a particular age because people progress at different rates in their careers. The closest that can be analyzed is the optimal asset allocation for particular times in your career progression.  Determination of the right investment is a delicate balance that has been likened to art.

That said, the culmination may be a unique financial goal but the planning process is constant and should last for decades.  Goals may be modified as an individual’s age increases or other commitments such as a family, arise. These two, especially the former, give clues as to a person’s financial potential coupled with their ability handle investment risk.

Here we shall analyze different investment strategies using different life stages as the main parameter. Age can be construed in two ways: the actual age of an employer and also in terms of how close they are to retirement.  The age groups are for purposes analysis and cannot be an absolutely reliable indicator for individual decisions. Let’s just say it’s is sort of an average analysis of a typical career.

Early career years-20s and 30s

About 25 Years from Retirement

The luxury of making early deliberations on retirement is that time is very much on your side. A retirement plan can be more aggressive in approach. This is because there are many years to weather market fluctuations.

The typical young adult that fits this group would be starting a first job and possibly considering starting a family. For those reasons, the primary focus of investment should be accumulation of wealth for future prosperity. Options are in plenty and potential investors in this bracket should be aggressive to maximize on their ability to withstand risk.

Conventional retirement plans such as Individual Retirement Account (IRA) and employer based retirement plans like 401ks are worth a look. Investors should carefully determine what kind of plan to adopt so as to take up one compatible with their earning power.

Equities are a viable investment at this age since they typically provide greater long term growth potential compared to cash instruments or bonds. It is an easy choice particularly when you wish to create a solid foundation for your retirement portfolio. For investors with more disposable income, riskier investments like real estate are also viable.

Aggressiveness does not equate to taking up blatant risk. Rather, it refers to maximizing on your ability to build wealth.

Mid To Late Career Years- (40s to early 50s)

10 To 15 Years to Retirement

Most people are at the apex of their earning power in these years. Any retirement plan can be fully actualized at this point and if well executed could mean a comfortable retirement.

However, at the same time there are usually greater responsibilities such as a family and kids to cater for. The retirement approach should be one that balances retirement planning and other larger financial commitments. An example is a child's college education.

Just as for the previous age group, contributions to one or more retirement accounts are a solid option. A personal account or employer-based retirement funds are two ways to go about it.

There may still be time to invest something that matures depending on your income level and balance of responsibilities. Typically, people in this age bracket earn more than their younger counterparts. Equities can still be a prudent choice. Dividend paying stocks is also a decent alternative as it balances short and long term ends.

The fundamental investment instinct however begins to shift at this point. A prudent investor will therefore begin to make strategies aimed at wealth preservation rather than or besides wealth creation. This is because the retirement age has begun drawing closer as opposed to years left to work in whatever profession the investor is in. Investment in government backed securities or secure bonds are very good choices for conservative investors at this point.

The late Years (55-60s)

Imminent Retirement

Many at this stage have imminent retirement if not already retired. They can afford the least risk on their portfolio since there is hardly time to recover from potential losses. Wealth preservation is the primary consideration and anything else is secondary. An investor knows that in the very near future their earning source will be turned off. Their choice of investment is essentially their future worth.

The easy option would be allocation of their assets to fixed income investments. These may be less volatile but have the downside of lower returns than stocks. Other safe alternatives are bonds and dividend paying stocks as they could provide needed income upon retirement.

Investors at this stage are understandably conservative in their choices. However, being too conservative especially in the current low-interest regime may be as bad as being too aggressive. This is because there has to be a certain return on investment for it to make sense.

For those already retired, investments from yester years will have matured. Plans such as 401Ks will have to sustain the investor. These are typically used for crucial needs like healthcare among others. Vital decisions such as estate planning should also be on the forefront because an investor should plan for any eventuality.

In Summary

It is generally a fact that in the long term, stocks when selected well offer greater returns in the long term. Bonds on the other hand may be less lucrative but the security and certainty of such investment is more guaranteed. The latter therefore is more suitable for investors who have a larger asset base and are risk averse.

An investor therefore must take into account their years to retirement when making any plans. The earlier the planning begins the better. This is because in certain sectors such as coal for instance, new technology may come up and force large numbers of people into retirement. There is no harm in making early solid plans to spend your golden years in happiness.