While most people receive Social Security, a secure financial retirement depends on also having significant savings in a retirement account. Typically these funds must last nearly 25 years (assuming the average age for retirement is 63 years and the average life expectancy for someone who reaches that age is 19.1 years for a man and 21.8 years for a woman). Many of us now live beyond this life expectancy, so the amount of funds accumulated in retirement accounts depends not only on what you contribute during your work life (and how well those investments did), but on your investment returns after you retire. These in turn depend on your investment strategies.

A Coordinated Approach

If you have more than one retirement account, such as a 401(k) at work and a personal IRA, it’s essential to coordinate your investment strategies across all your holdings. Without coordination you may be duplicating your holdings and not taking full advantage of the opportunity to diversify. And if you’re married, you may want to coordinate investment choices with those made for your spouse’s retirement accounts.

You also want to coordinate your holdings in your taxable and tax-deferred accounts. So if, in addition to your retirement accounts, you have a taxable investment portfolio at a brokerage firm or with a mutual fund, review your holdings in all such accounts. This enables you to put investments in the appropriate accounts, depending on tax considerations (explained later) and other factors. For example, if you want to own tax-free municipal bonds, these belong in your taxable account. If you put them in your tax-deferred retirement account, the interest on the bonds effectively becomes taxable because all of your distributions are taxed as ordinary income, regardless of the source of the earnings.

Factors in Making Investment Choices

There’s no single strategy that’s right for all individuals. Many factors come into play in choosing investments for retirement plans. Consider:

  • Your savings horizon. The longer you have until your expected retirement the more risk you can afford to take. The stock market has experienced severe downs, but if you have years to go before you need the funds, you can weather the downs and expect to see the value of your account not only return to its pre-decline level but to an even higher level over time. For example, the stock market hit a low of 6,443.27 on March 6, 2009, causing many accounts to see declines of 20% or more. But if you…

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