How should a retirement portfolio be structured?

In this article
  • Utilizing tax-favored savings tools
  • Focusing on long-term returns and steady growth
  • Advantages of portfolio balancing
  • Keep investing, even after retirement


The first step is to take advantage of tax-favored retirement savings tools. Take full advantage of a 401(k) or other employer-sponsored plan at work. Open an IRA account and contribute as much as possible. Ideally, invest in both an employer plan and an IRA.

Contributions to employer plans like 401(k)s are typically made on a pretax basis, but plans may also allow after-tax Roth contributions. Pre-tax contributions reduce current income, but those contributions, and any investment earnings, are subject to federal income tax when withdrawing them from the plan. Roth contributions, on the other hand, have no up-front tax benefit. But contributions are always tax free when distributed from the plan, and any investment earnings are also tax free if a distribution is qualified. Similarly, IRAs allow a choice of either tax-deductible contributions (traditional IRA) or tax-free withdrawals (Roth IRA). Plus, funds held in an employer plan or IRA grow tax deferred. These tax features may make it possible to accumulate a sizable retirement fund, depending on how well the underlying investments perform.

With that in mind, aim for long-term investment returns and steady growth. Many financial professionals suggest a balanced portfolio of stocks, bonds, mutual funds, and cash equivalents. The percentage of each will depend on risk tolerance, age, liquidity needs, and other factors. However, the notion is fading that one should change their investment allocations and convert their entire portfolio to fixed income securities, such as bonds or CDs, by the time they retire. Instead, many professionals now advise continuing to invest for long-term growth even after retirement --especially since people are retiring younger and living longer on average. Personal circumstances will dictate the right mix of investments, and a qualified financial professional can help make the right choices.

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GE 115264 (08/2016)

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