Retirement should be an exciting time. After all, you’ve worked for decades, and now it’s time to sit back, relax, and do whatever your heart desires. To be able to do this, though, you need to make sure your finances are in order.
Regardless of how far out from retirement you are, it’s never too late to begin taking steps to set yourself up for financial success. Here are some solid retirement moves you can make.
As a rule of thumb, you want your investments to become less risky as you near retirement because there’s less time to rebound from market declines that could drop your portfolio’s value significantly.
Reallocate your 401(k) holdings
Part of adjusting your risk should include shifting away from small-cap and mid-cap funds and into large-cap funds (like the S&P 500) that are generally more stable.
If your 401(k) contributions are going into a target-date fund, the fund automatically adjusts to become more conservative as you near retirement, but target-date funds are generally expensive to own relative to index funds. You can achieve a low-cost, well-rounded 401(k) portfolio with four index funds: Large-cap, mid-cap, small-cap, and international. If you’re in your 30s with decades until retirement, your allocations may be:
- Large-cap: 60%
- Mid-cap: 10%
- Small-cap: 10%
- International: 20%
However, if you’re in your 50s and retirement is around the corner, your allocations may be:
- Large-cap: 75%
- Mid-cap: 5%
- Small-cap: 5%
- International: 15%
What’s important is that you adjust your allocations to fit your risk tolerance, while considering how harmful too much risk too close to retirement can be for your portfolio.
