Soon-to-Retire (ages 56-65): Strategies and Recommendations for Long-Term, Balanced Oriented Return Objectives

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Written By Mark

Mark is the co-owner of and has many years of experience in financial markets. 

If you’re soon to retire (guidelines between ages 56-65), you may have questions about conservative long-term growth strategies. Your investment objectives may shift from a growth-oriented focus to reflect balanced return objectives. Reducing capital risk and prioritizing income may be important to you now. 

In planning for your retirement, you took steps to identify investment goals. Then, you used time and patience to save and invest to reach these goals.

Much retirement investing advice focuses on certain strategies or formulas. However, perhaps it’s most important to step back and consider your progress thus far.

Before You Retire

  • Know your options concerning investments and retirement savings plans.
  • Begin the process of saving for retirement as early in your life as possible.
  • Give your money as much time as you can to grow.
  • Compute your net worth at least once a year.
  • Consider the costs associated with your investments. Fees can reduce the amount of invested capital.
  • Consult with a financial advisor at any time if you have questions or need advice.

Know Your Retirement Savings Plan Options

Both tax-advantaged and taxable retirement plan accounts are available to you. Your employer may offer some plans. Others are available from your bank or broker-dealer firm.

Your retirement plan accounts, e.g. 401(k), IRA (individual retirement accounts), and broker-dealer accounts don’t describe your investments. They’re the portfolio structures in which your investments are held.

Tax-Advantaged Retirement Accounts

Your retirement account may bring tax advantages in different ways.

Your IRA and 401(k) are both examples of tax-deferred retirement plans. In other words, you don’t pay taxes on your accrued earnings in these accounts each year.

Instead, you pay income tax on the money when it’s withdrawn in retirement. Early withdrawals from these accounts are subject to penalties, so plan accordingly.

Both traditional 401(k) and IRA accounts are funded with pre-tax money. You receive a tax deduction for the fund deposits during the year in which they’re made. In comparison, a Roth IRA or 401(k) is funded with after-tax money.

You don’t deduct the money you deposit in these retirement plans. Importantly, you won’t pay taxes on withdrawals in retirement later on.

Taxable Plans

A taxable plan doesn’t qualify for any type of tax advantage. These plans are funded with after-tax funds. When you deposit money into them, you don’t receive a tax deduction.

What’s more, if you make money on the investment income, interest, or capital gains, you pay taxes at the appropriate tax rate. Many banks and broker-dealer accounts are taxable account plans.

Importantly, it’s possible to maintain both tax-advantaged retirement plans like an IRA along with your regular portfolio account plan at a broker-dealer.

Types of Retirement Accounts

If you’re soon to retire, learn about the types of retirement accounts and plans available.

Defined Benefit Retirement Plan

Fewer employers provide pension plans to their employees today. These defined benefit retirement plans guarantee certain retirement benefits calculated on your employment history and earnings. 

401(k) Retirement Plans

Many employers offer defined contribution plans that employees fund. The employer may present automated savings withdrawals and sometimes matching contribution funds.

This year, it’s possible for workers 50 and older to contribute up to $27,000. If you select to contribute the maximum amount allowed to your 401(k), your taxable earnings are also reduced dollar-for-dollar. It’s definitely a win-win strategy.

Traditional IRA

You may deduct the funds contributed to a traditional IRA in some instances. Withdrawals from your IRA are taxable at your then-individual income tax bracket. In 2022, soon-to-retire individuals can contribute $7,000 to a traditional IRA.

Roth IRA

Contributions to a Roth IRA aren’t tax-deductible. However, your qualified distributions in retirement are tax-free.

When compared to most other retirement plans, Roth IRAs don’t require minimum distributions. It’s possible to contribute a maximum of $7,000 this year for investors 50 and older.


SEP IRAs are arranged by self-employed people and employers. The employer contributes tax-deductible funds for its eligible employees.

This year, the annual SEP IRA contribution made by an employer can’t be greater than 25 percent of the employee’s total compensation ($61,000 in 2022).

Simple IRA

The Simple IRA retirement plan is used by small businesses (100 employees or less). The employee may contribute as much as $14,000 this year. If you’re 50+ years old, use the catch-up contribution limit of $3,000.

The employer can elect to contribute two percent to all employees or maximum matching contributions of up to three percent.

Investment Types for a Balanced Portfolio

Many investors want to prioritize capital preservation and income as they approach retirement. Others want to continue to grow their capital to offset the negative impact of inflation.

Depending on your personal investment goals, the following investment types may be suitable as you approach retirement:

Annuity Plans

Insurance companies offer annuities that provide income during retirement. It’s possible to receive income payments each month, quarterly, annually, or in a lump-sum distribution in retirement. Note that annuities aren’t liquid.

Precious metal IRAs

Hard asset classes are to be included for an effective portfolio diversification. Your 401(k) plan can even be converted in a physical gold IRA account.

Mutual Funds

Mutual funds have the benefits of professional management and diversification. They contain equities, bonds, and other investments to individuals.

If an investor wants growth with income during retirement, it’s possible to find mutual funds to match this objective.

Stocks (Equities)

Corporations issue shares of stock. Each share represents an equity interest in the corporation. 

Bonds (Debt)

Corporations and governments borrow money from investors in exchange for promised repayment of principal and scheduled interest payments. See why they are important here.

Exchange-Traded Fund (ETF)

An exchange-traded fund trades like shares on stock on an exchange. They may track sector indexes, baskets of assets, broad-based markets, or commodities.

Cash and Cash-Equivalents

Soon-to-retire investors often want to liquidate some of their assets to hold in cash or equivalents. It’s possible to place cash in short-term and low-risk obligations, e.g. money market deposit accounts, U.S. Treasury bills, or certificates of deposit (CDs).

Divident Reinvestment Plan (DRIP)

A DRIP plan allows you to automatically reinvest dividends by acquiring fractional or new shares on the security’s dividend payment date. A DRIP plan uses compounding to build wealth.

Start Investing As Soon as Possible

Regardless of your risk tolerance and long-term return objectives, it’s important to start investing as soon as you can.

There are many reasons to invest as soon as possible, including:

The power of compounding can help you to magnify the effect of your investment gains. 

Invest regularly and routinely to improve your chances of achieving a comfortable retirement.

Time in the market counts. With more time, you can sample higher risk and reward investment opportunities 

Compounding and Time

Compounding is a successful strategy to employ over a longer period of time. If you invest $10,000 at 20, assuming a five percent return each year through age 65, you’d have almost $90,000.

If you invest $10,000 at 40, your money compounds over 25 years. Assuming a five percent annual return, you’d have about $34,000 in retirement. If you invest $10,000 at age 50, assuming the same return, your investment grows to about $21,000.

The sooner you put money to work for retirement, the better your potential outcome. However, it’s also important to start saving for retirement as soon as you can. It’s never too late to improve your financial future.

Your Net Worth

Many people never stop to consider their net worth. This calculation is the net difference between your assets and your liabilities. 

Assets include (1) cash and cash equivalents, e.g. checking, savings, Treasury bills, and certificates of deposit (CDs); (2) investments, e.g. mutual funds, ETFs, equities, and bonds; (3) personal property, e.g. household contents, boats, vehicles, collectibles (art, etc.), and jewelry; and (4) real estate, e.g. your primary residence, second home, or rental properties.

Liabilities include (1) mortgages, vehicle loans, student loans, personal loans, credit card balances, and medical bills.

Subtract liabilities from assets to arrive at your net worth. This calculation provides a reflection of where you stand today as a soon-to-retiree.

Rising or declining net worth can help you determine whether you’re headed in the right direction or if changes are necessary before you retire.

Net Worth for the Soon-to-Retire category

The old adage “You cannot reach a goal without setting it” remains essential for retirement planning. Without establishing your goals, how will you know how much to save or invest?

Take the time to consider you’re making good decisions about retirement. Commit your retirement goals to written form and refer to them often.

For instance, if you (1) want to retire at 65, (2) want to travel 10 weeks a year, and (3) want a minimum $3 million retirement nest egg, your net worth is a quick way to check your progress towards achieving these goals.

Aged from 56 to 65? Check Your Emotions

Unfortunately, the success of your retirement investments may be influenced by your emotions. 

If your retirement plan is performing well, you may succumb to overconfidence in your ability to select investments. You may push concerns about risk aside. In this state, you make poor decisions and lose time and money.

If your retirement plan isn’t performing well, it’s possible to let fear take over. You may feel that putting all your money into cash or cash equivalents is the only way to proceed.

Because these securities pay low returns, your retirement plan won’t grow as it otherwise might.

It’s important to acknowledge emotional reactions. Emotions can derail your desire to grow capital over time. Overconfidence and fear are both detrimental to your ability to manage a retirement plan. 

Instead, stay realistic. Know that not all of your investments will make money. Not all of your equities will grow indefinitely into tomorrow’s blue chips.

Check your emotions at the door. Recognize both wins and losses (including unrealized wins and losses). Evaluate your choices before reacting to them. Never make decisions in haste. Learn from your mistakes as well as your successes.

Lastly, seek professional financial advice now. Get all the help you can to grow your assets now.

Balanced Portfolio Objective

As you prepare to retire, consider maintaining a balanced portfolio. Diversification is still important. Consider your risk tolerance profile and overall return goals.

Rebalance the portfolio as needed when your goals and risk tolerance change. 

During this time in the investment life cycle, you may have less time to recover from broad market declines or investment mistakes. If you’re at or near retirement, you may shift the retirement portfolio to a greater proportion of lower risk and reward investments, e.g. bonds.

Investment Fees

Gains in your retirement account can be dramatically reduced by fees, e.g. transaction fees, loads, administrative costs, and expense ratios. 

Fees can affect your performance. Start by calculating what you spend on fees. Your statement is the first place to start.

Check the costs of executing acquire or sell transactions or read your mutual fund prospectus to identify expense ratio information. If you’re paying too much, look for no-load mutual funds or groups of funds. 

Let’s consider the impact of expenses on your potential returns:

If you invest $10,000 in a fund (2.5 percent expense ratio), the investment is worth about $42,500 in 20 years with a 10 percent annualized return.

In comparison, reducing the expense ratio to 0.5 percent can have a dramatic impact. Your $10,000 investment is worth almost $61,500 assuming the same annualized return.

Soon-to-Retire: Bottom Line

As you prepare to retire, consider your investment return objectives. This may be the ideal moment to shift from growth-oriented assets to income plus growth.

Analyze your portfolio to identify potential ways to cut costs and fees. Achieve your long-term goals with patience and professional advice when needed.

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