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4 Rules for Investing in Retirement

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Lisa Richmond-Kirby

Lisa Richmond-Kirby

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Investing doesn’t stop once you’ve begun your retirement journey. Instead, it’s time to be even more strategic and perhaps take a little risk. Investing in retirement will look different than what you’re used to but most of the fundamental investment truths still apply. Let's take a look at 4 ways you can be a savvy investor in your golden years. 

Re-evaluate and Assess Your Risk

Investing in retirement helps safeguard your assets against inflation and longevity — but some things will have to change from your early years in the market. Two areas that will most likely shift are your risk capacity and risk tolerance. Risk capacity refers to your financial ability to assume risk before it affects your financial goals, while risk tolerance refers to your emotional or mental ability to stomach risk.

The level of risk you take on with each of your investments can and will vary. In retirement, it’s typical to take less risk, but that’s not always the case. Perhaps you don’t transition your full portfolio to a low-risk, and instead have a bucket strategy — higher risk for larger returns to outpace inflation, the medium risk for longevity, and low risk for your current needs. 

A great first step to assessing your risk is to check and see if your bank has a retirement section on their internet site. Many bank websites allow you to enter your assets earmarked for retirement, your current age, your desired retirement age, and your expected monthly retirement expenses and income needs. 

Then, based on the data you entered, the bank will provide you with a percent of how close you are to reaching your retirement goal. Some bank websites even suggest ways of increasing your percent if there is a shortfall concerning reaching your goal in the desired time.

Ask yourself, “How much risk am I willing to take to meet my financial goals and objectives?”. You may be willing to take on more or less risk than your friends and family but it’s important to understand what you are comfortable with.

Find New Ways To Diversify Your Portfolio

Diversification may sound like an intimidating word but it’s nothing to be scared of. Diversification, put simply, is putting your money in different investment “buckets”. It helps ensure that your portfolio isn’t over or underexposed to certain risks.

The trick is to retain the right balance between equities (like stocks) and fixed income investing (like high-yield bonds). At First Dakota, we believe that everyone, no matter their age, should always have some exposure to equities in their portfolio. Doing so can help you maintain your investment acumen and set yourself up for future success.   

There are also several ways to diversify your portfolio alongside stocks and fixed-income including investing in:

  • Real estate
  • Farmland
  • Mutual funds
  • Bonds
  • Exchange-traded funds

When it comes to investing in retirement, it’s all about building a diversified portfolio that accounts for your risk, goals, and time-horizon.

Remain Vigilant On Your Tax Situation

Taxes can eat up a significant portion of your nest egg, perhaps faster than you may have anticipated. Make sure that you're investing in a tax-conscious way and understand the key differences between pre-tax, post-tax, and taxable income.

Withdrawals from pre-tax, or tax-deferred accounts, are taxed as ordinary income such as your 401(k) or traditional IRA. Your Roth accounts aren’t taxed at distribution (assuming you follow the rules) since they were funded with after-tax dollars. 

Just like you did before retirement, you’ll have to pay taxes on dividends and interest income from your brokerage account. These are taxed as capital gains.

An easy way to avoid excessive taxation is to only withdraw from accounts when you’ve reached the minimum age. For example, if you withdraw money from your 401k (for an unqualified reason) before age 59 ½, you will be subject to a 10% early withdrawal penalty.

Different tax rules apply to each type of income you receive. You’ll work with your advisor to build an effective tax strategy to help you minimize your taxes in retirement.

Set New Goals

Your investment plan should have strong goals behind it. What are you investing in short, medium, and long-term? How can your goals inform your choices and guide you throughout the process? Develop a list and actionable next steps for you to stay on the right track.

It’s vital to ensure that your estate plan is in order. This means you will need to review your will, beneficiaries, trusts, retirement accounts, and insurance documents. When your estate plan is accounted for and in order, you’ll be in control of the legacy you leave behind. 

Bonus: Work With A Team You Trust

A trusted professional in your corner can help you manage the moving pieces of your retirement investing journey. Take the time to interview several firms before making a final decision. A true trusted professional will want to know your goals and issues and learn about your family before asking about your wealth or discussing fees.

Achieving your goals in retirement may seem impossible, but the officers at First Dakota Wealth & Trust can help get you there. Contact our team today and take the next confident step in retirement.

First Dakota Wealth & Trust is the fiduciary investment department of First Dakota National Bank with trustee powers to serve clients during their lifetime, during incapacity, and after death. We help clients develop a financial roadmap to help simplify their financial future.

Please note that neither First Dakota National Bank nor First Dakota Wealth & Trust Department, or its employees provide tax or legal advice. This is intended for informational purposes and is not intended to constitute legal or tax advice. Please consult your attorney and/or tax professional for advice related to your specific situation.