The American dream of a long, fulfilling Retirement is becoming a reality for more people than ever before. As people are more aware of investment and saving, they are building their retirement portfolios stronger than ever.  With increasing life expectancy—the US Census Bureau reports a growing number of Americans reaching their 90s and beyond—ensuring your savings last a lifetime is more crucial than ever.

It is when you need a retirement portfolio. But what is it? How do you build one?

Elliot Kallen, a seasoned financial planner, wisely states, “It’s all about striking the right balance between preservation and growth.”

While the thought of retirement planning may seem daunting, with discipline and determination, you can get closer to your retirement goals after years of hard work.

How do you do that?

Today, we’ve created a guide to help you construct a personalized portfolio supporting your golden years.

What is Retirement Portfolio

A retirement portfolio is a collection of assets you expect to grow in value over time. For most retirement savers, these assets include stocks portfolio, bonds portfolio, and funds portfolio. You invest in these securities while you’re earning a paycheck, so you can convert them into income when you retire. 

Why is a Portfolio Essential? 

While saving cash is crucial, it alone won’t generate a substantial six-figure return. Similarly, Social Security benefits are designed to replace less than 40% of your income, but they’re not enough to cover all your expenses.

A retirement investment portfolio is essential for securing your financial future. By strategically allocating assets for retirement portfolios, across different investment options, you can increase compound growth and build a financial cushion.

Structuring Your Retirement Portfolio

How should you structure your allocation? Investors should have three main steps to build a retirement portfolio. Here are some thoughts:

Establish Your Financial Moat: Start by setting aside an emergency fund equivalent to one year’s living expenses. This cash cushion, parked in a readily accessible account, protects you from unexpected life events like job loss or medical emergencies. Remember to replenish this fund throughout the year to maintain its effectiveness.

Create a short-term reserve: Once your emergency fund is in place, it’s time to create a bridge to your retirement. This next step of savings typically covers two or four years of expenses. This reserve should be invested in less risky options than stocks, as you might need to access it within a few years. Suitable investments for this purpose include bonds and short-term certificates of deposit.

Invest the rest of your portfolio: With your cash reserves and short-term in place, it’s time to focus on how to allocate the remainder of your investments according to your goals, time horizon, and risk tolerance. 

For instance, if you’re in your early career, you might be more comfortable with stock portfolios, as they offer higher returns over the long term. As you approach retirement, you may shift towards a more conservative mix with a greater on bonds to protect your principal amount. 

By aligning your investment strategy with your retirement timeline and comfort level with risk, you can better achieve your financial objectives and build a portfolio that supports your long-term needs.

Investment Account Types For Retirement

One of the first decisions you’ll need to make in your retirement Investing journey is where to hold your securities. Your options for investment accounts can vary based on your Employment status and the programs offered by your employer. 

Here’s a table with 18 investment account types you can use for retirement, including their tax treatment and availability details. 

Understanding the tax treatment of your accounts is crucial. We’ll break down the three main categories: taxable, tax-deferred, and tax-free, so you can make informed choices for your financial well-being.

Taxable accounts

Taxable accounts are accessible to any adult with a Social Security number. Setting up a taxable account is straightforward-similar to opening a cash savings account. You just need to complete a few forms, and you’re all set to begin investing. 

In a taxable account, you’ll face taxes on interest, dividends, and any realized capital gains. At the end of the year, the financial institution managing your account will provide an annual tax statement. These documents summarize your taxable transactions, helping you track and manage your tax obligations. 

Tax-deferred accounts

Tax-deferred accounts let you postpone taxes on interest, dividends, and gains and allow contributions with pre-tax funds. This means your investments grow tax-free until retirement, at which point withdrawals are taxed as ordinary income.

These accounts have rules and penalties. For example, withdrawing pre-tax funds from an IRA or 401(k) before age 59½ usually incurs a 10% penalty. Knowing these details helps you manage your withdrawals and avoid extra costs.

Tax-free accounts

Roth IRAs and ROTH accounts within a 401(k) or 403 (b) offer tax-free growth on interest, dividends, and capital gains, provided you meet certain conditions:

1. Contribute after-tax Money. Roth accounts are funded with money that has already been taxed.
2. Wait until you are 59½  to withdraw. You must be at least 59½  old to take withdrawals.
3. Five years or more since your first contribution. You need to have held the account for at least five years.

When these conditions are met, your investments grow without tax implications, and withdrawals in retirement are tax-free.

Health Savings Accounts (HSAs) are another option for tax-free growth. Although primarily for healthcare expenses, you can use HSA funds for medical costs in retirement. HSAs accept pre-tax contributions and allow tax-free withdrawals, but only for qualified healthcare expenses.

If you withdraw HSA funds for non-healthcare purposes before age 65, you’ll face a 20% penalty. After 65, you can withdraw money for any purpose. Healthcare-related withdrawals remain tax-free, while other withdrawals are subject to ordinary income tax.

Types Of Investments For Retirement Portfolios

The best retirement portfolio is one that is diverse and wisely invested. Retirement savings are a marathon, not a sprint. Understanding your investment options is crucial to reaching your financial finish line. Let’s break down the key players.

Stocks: The Growth Engines

Stocks are like owning a piece of a company. They can grow over time, and many pay dividends – like extra cash back.

• Growth stocks are fast-paced and aim for rapid growth. They often reinvest profits rather than pay dividends. Examples include Tesla and Amazon. While they can deliver significant returns, they are also more volatile.
• Value stocks are steady earners. These companies are often established, pay dividends, and are seen as undervalued. Companies like Coca-Cola or Johnson & Johnson. Investors earn income through dividends while waiting for the stock price to increase.
• Dividend stocks focus on income. They regularly pay out a portion of their profits to shareholders. Stocks with a history of increasing dividends annually, such as Procter & Gamble, are particularly beneficial in retirement Building a portfolio of these can provide a steady income stream in retirement.

Bonds: The Stabilizers

Bonds are like lending money to a company or government. You get regular interest payments in return. They’re generally less risky than stocks but also offer lower returns.

• Government bonds are considered the safest.
• Corporate bonds offer higher returns but come with more risk.

Bond funds are a popular way to invest in a mix of bonds without buying individual ones.

Funds: The Diversifiers

Mutual funds and ETFs (Exchange-Traded Funds) are like baskets of investments. They allow you to own a piece of many different stocks or bonds with a single purchase.

• Mutual funds are managed by professionals.
• ETFs are traded like stocks and often track a specific index, like the S&P 500.

Other Options

• Annuities: These insurance contracts provide guaranteed income in retirement.

• Real estate: While you can own property in retirement accounts, it’s often easier to invest in real estate funds.

Types Of Portfolio Management

Managing your retirement portfolio can feel like a juggling act with all the stocks, bonds, and funds involved. Fortunately, there are different investing styles to match your preferences, whether you like to be hands-on or prefer a more relaxed approach.

Active vs. Passive Investing

Active investing means frequently buying and selling securities to capitalize on short-term gains. For instance, an active investor might buy 100 shares of Nvidia (NVDA) and aim to sell when the price rises by 15%. This strategy requires constant market monitoring and quick decisions.

In contrast, passive investing focuses on long-term growth. Investing in an S&P 500 index fund is a common example, which has historically returned about 10% annually. This approach emphasizes holding investments over time to benefit from compounding and market growth.

Discretionary vs. Non-Discretionary Investing

With a discretionary account, your broker makes investment decisions and trades on your behalf. This is ideal if you prefer a hands-off approach and trust your broker’s expertise.

A non-discretionary account means your broker provides recommendations, but you make the final call on trades. This setup is for those who want to stay involved in their investment decisions while receiving professional advice.

Understanding these options helps you choose the right strategy for managing your retirement investments effectively.

Wrap up – Start Planning Now!

At Prosperity Financial Group, we understand that achieving financial security requires personalized guidance. Our team of experienced financial advisors will work with you to understand your unique goals and risk tolerance. We’ll help you build a customized investment plan to secure your dream retirement portfolio.

Ready to take control of your financial future? Contact Prosperity Financial Group today for a free consultation. Let’s turn your retirement dreams into reality!

The post How To Built Your Retirement Portfolio appeared first on Prosperity Financial Group | San Ramon, CA.

Elliot Kallen Wealth Manager | Registered Principal

For more than three decades, Elliot has provided customized wealth management solutions for entrepreneurs, business owners, retirees, and millennials.

Elliot and his wife, Tammy, are passionate about giving back to the community through their 501(c)(3) foundation, A Brighter Day. Through his partnership with A Brighter Day Charity, the Kallen family has helped local teens and young adults recognize and access resources to cope with the risks of stress and depression.

He enjoys spending his free time with his family. Some of his hobbies include cooking, wine, golf, travel, and studying history.

He lives in Lafayette, California with his wife, step-daughter, and grandson.