Getting ready to retire? Does your IRA make you retirement ready?

Estimated reading time: 3 minutes(Last Updated On: November 30, 2018)

When you’re getting ready to retire, it’s important to remember that a “one size fits all” approach is unwise for retirement planning. Each plan is different, particularly when you factor in how close someone is to his or her target retirement date.

How do you know when you’re retirement ready?

Depending on how much longer you have before you’re ready to retire, your goals and focus will vary greatly. Take a look at the breakdown below.

Getting ready to retire in 30 or more years. By contributing to an IRA when you’re this far away from being retirement ready, you’re giving yourself the best chance to reach your financial goals. When you have 30 or more years for your investments to grow, you can consider speculative investments for your portfolio. Having more time will give those investments the greatest likelihood of paying off and, if they don’t, you still have time to make up any funding shortfalls. If you are this far away from retirement, you should also deemphasize any Social Security earnings that may currently be in your retirement budget; you may not be able to count on that income stream.

Getting ready to retire in 20 years. If you’re 20 years away from retirement, your ongoing financial position should be relatively strong. At this point, you may have already repaid your student loans, and your home mortgage balance is lower – perhaps to the point where you’ve refinanced to a very affordable monthly payment. While you should always try to maximize your annual contributions to an IRA, this is the time to absolutely make sure you start doing so. Your account holdings should reflect a mix of different asset types, with a continued focus on those with the greatest chance of long-term capital gains.

Getting ready to retire in 10 years. With just a decade to go until retirement, you are now entering the home stretch. There’s a good chance that you are able to maximize your annual IRA contributions, and you may even be old enough to take advantage of the additional “catch-up” contribution limit that’s available. Since you have fewer years left to contribute to your account, you may start seeking out slightly less risky investments.

Nearly retirement ready. It’s not uncommon for new and soon-to-be retirees to dramatically shift the focus of their IRA holdings. The most common change is for the account holder to transition away from growth-oriented investments and toward income-generating investments. Now that it’s time for the account holder to start using his or her account to pay for living expenses, investments that generate income are a great way to do this. Unfortunately, sometimes this asset shift can be overdone. Your retirement may last several decades, so you should continue allocating at least a small portion of your portfolio to growth investments.

Note that these guidelines aren’t keyed to any particular ages. Some people may try to retire early, while others may decide to keep working into their 60s and well beyond. Whatever you decide is best for you, an IRA custodian such as Quest Trust Company can help you accomplish your self-directed IRA investing goals.

Quest Trust Company helps change people’s lives and financial future through self-directed IRA investment education. Quest Trust Company helps people invest in what they know best and build their financial future on their own terms.