Retirement Planning: The Importance of Investments and Diversification

Retiring is something everyone looks forward to after a long and successful career. However, very few are properly prepared for it.

There are some who have become more diligent in preparing over the years, but you’d be surprised to learn how many working adults are relying on social security and a small amount of savings to tide them over once they’ve retired.

Unfortunately, many of them don’t have the luxury of retiring and must continue working to make ends meet. If you plan on enjoying your retirement, proper planning and diversification are necessary to secure your future.

 

Social Security Isn’t Enough

If you’ve worked your entire life with no breaks in between (pregnancies, illnesses, etc), and you’ve reached the age of 62 to 70, then you’re looking at an average monthly payout of $1200.

Though there are people who live with far less than this, it does present a struggle. If you were to tally up monthly expenses like housing costs, transportation, groceries, and medical expenses, would it be less than, greater than, or equal to $1200 per month?

Even if your total household expenses don’t total more than $1200 per month, this essentially means that only your essential costs have been covered. What about entertainment and travel, medical costs not covered by insurance, unexpected emergencies, and outstanding debt like personal loans or credit cards?

More often than not, social security won’t be enough to cover it leaving you with the responsibility of compensating for these expenses.

 

Savings is a Start

Many adults work for organizations that offer some form of a retirement savings account. For as long as they work with the company, small amounts are withdrawn from their paychecks and deposited into savings.

Though the accounts offer reasonable interest rates and employers sometimes match employee contributions, it is only one method of investing for retirement.

Unfortunately, however, most retirement accounts have very low-interest rates, meaning you won’t get very much in return for leaving your money in the account.

After 30 years of working and contributing, you may only see a small return on investment, which is why it is necessary to invest in assets like stocks and bonds, real estate, and businesses.

 

Investing Puts Your Money to Work for You

Unless you want to work harder to secure money to contribute towards your future, you have to learn to work smarter.

The income you bring home daily can be put to good use and help you cover expenses now and in the future if you know where to turn. Your retirement savings account will only warrant a small return on your investment, while the stock market, real estate, and businesses can multiply your income immensely.

Once you’ve developed a strategy for monitoring the stock market, managing your real estate property, or running your business, the initial money you invested has the potential to double or even triple giving you more money towards your retirement.

 

Risks are Common

One of the main reasons it is imperative to diversify your retirement portfolio is because there are risks involved in investing.

The stock market could crash or your stocks could lose value, you would need to dip into your savings account for current emergencies, you could end up out of work for a long period of time resulting in less social security, or you could house difficult tenants who damage your property and barely pay rent.

Though you hope this doesn’t happen, having your eggs in more than one basket ensures that when you’re ready to start living off of your investments, you have several avenues you can turn to.

After dedicating more than half of your life to a career, you want to be able to walk away and live out the rest of your days in peace.

The only way to ensure that retiring isn’t financially or emotionally strenuous for you is to start saving and investing now. The sooner you begin investing and the more diverse your portfolio is, the better prepared you’ll be to enjoy your retirement without the stress of finances.

Are you diversifying your investments?  Share your thoughts and comments below.

Cheers!