While most of us look forward to retirement, we also worry about whether we can afford to do so as soon and as painlessly as we’d like. Making a plan for retirement growth is the key to doing so. Regularly putting savings aside is a great way to build a nest egg, but protecting those funds from inflation and market fluctuations is just as crucial to ensuring you have the funds to retire in comfort and on schedule.
At Pennington Wealth, PLLC, we want to help Arizonans like you prepare for the future with confidence. We can review your financial situation and goals, advise you about how to meet them, and prepare the legal documents to help you do so. Contact us today for a free, confidential consultation with Andre L. Pennington, a retirement growth professional in West Valley Arizona, and start planning for tomorrow.
How Can I Protect My Principal While Only Taking the Gains in My Retirement Accounts?
Retirement accounts can not only help you save for retirement, but they can also provide tax benefits. For example, accounts such as traditional 401(k)s and traditional IRAs offer tax-deferred growth, meaning you invest your funds before paying taxes on the money. Investing pre-tax income reduces your current taxable income by the amount placed into the account. On the other hand, contributions to Roth accounts provide tax-free growth because you already paid taxes on the funds in the account. You will not need to pay taxes on the money when you withdraw it after retirement.
Protecting your investments is critical to ensuring you have enough money after you retire. Money lost or withdrawn from accounts now will compound in the future, as a decrease in principal translates to fewer gains on interest.
Fortunately, there are several ways to protect your principal investment while withdrawing your gains. Two of the most common ways to protect your principal are:
- Portfolio Diversification – Spreading your investments across various asset classes can minimize risk and protect your principal investment. You can diversify your investment portfolio by investing in multiple instruments, such as different types of publicly traded companies (big and small), bonds, and even real estate.
- Target-Date Funds – Many companies offer target-date funds based on your retirement year. For example, if you plan to retire around 2050, you will want to pick a 2050 target retirement fund. These funds diversify your portfolio, automatically shifting your investments based on how close you are to the target retirement date. Therefore, the further you are from retirement, the more aggressive the target fund will be. However, it will become more conservative closer to the target retirement date. This is because you have less time to make up for downswings in the market if you are heavily invested in volatile stocks.
Diversifying your retirement accounts is essential to protecting your investment and gains while saving for retirement.