3. invest smart
Plot a course for your investments that allows your money to grow even as you get close to retirement. Most financial advisers agree it’s best to focus more on the long-term growth of your retirement assets rather than the gains or losses you make in any one year. To achieve that growth, you may have to take a bit more risk.
Many baby boomers and retirees have planned to invest heavily in bonds for a steady source of income, using the stream of interest payments that they provide to cover everyday living expenses. But a more well-diversified portfolio may be needed. Add dividend-paying stocks, which can provide a little extra cash, and real estate or commodities, such as gold or currencies, to the mix.
Investing comes with risk. Some financial advisers suggest annuities as a way to get a steady stream of income during retirement. An annuity is a contract between you and an insurance company that requires the company to make payments to you either right away or in the future. Just make sure you understand the terms and conditions of an annuity contract before entering into one, because they can be complicated. There may even be an annuity option in your 401(k). Employers may offer deferred-income annuities in target-date funds used as default investments, which means you’re automatically enrolled in this option unless you change it, in the retirement plans they sponsor. A target-date fund invests more conservatively over the years as you get closer to your retirement date. This less risky approach is meant to protect your money should the stock market suddenly sell off. However, it also means you might not make as much money during big rallies. Target-date funds can be invested in stock and bond funds as well as annuities that begin payments at retirement or at a later time, offering another way to generate guaranteed income and help protect your savings later in life.
Sharon Epperson is CNBC’s senior personal finance correspondent and host of its digital video series Retire Well (cnbc.com/retirewell).