How should I invest during retirement? (2024)

• Understanding asset classes
  See the roles that stocks, bonds, and short-term reserves can play in a retirement portfolio.
• Should your investment approach change in retirement?
  Your investment mix should depend on your risk tolerance, your goals, and other factors.
• Be diversified
  You can lessen your risk by owning many different types of stocks and bonds.

Getting to retirement can feel like you’re crossing a finish line. You’re diligent, saving money, and balancing your needs over the decades-long race that’s your career. Then you reach that big goal—retirement. Good work! Now keep it up. Just as saving for retirement was a primary goal for your working years, understanding your investment mix is a key for your golden ones.

Let’s walk through the basics of an investment portfolio in retirement. We’ll help you understand risk and reward and the importance of being diversified in your approach. We also suggest you consult with your financial advisor about your personal situation.

Maybe. Think of it like you’re looking for a new pair of running shoes. You want to check that they fit, that they’re comfortable. You’ll be in these shoes for a while, so make sure they’re right for you.

Your investment mix is similar. The right approach depends on your personal situation, your goals, and your tolerance for risk. These will determine how your portfolio should be built. When you’re retired, your life is much different than when you were working. Without regular paychecks, you may have less steady income. Or you may have new income via Social Security, pensions, or annuities. And, importantly, you may start tapping your retirement savings.

Is your portfolio aggressive, conservative, or moderate? Do you understand the risks of different approaches? Your financial situation and goals may have evolved since you first selected your investments years or decades ago. There’s nothing wrong with changing your investment strategy, as long as it’s driven by careful consideration, not by market noise. We’ll dig into some details as you consider if your investment approach in retirement fits your needs. Then, you can decide if a change makes sense—based on your goals.

As a reminder, asset allocation is a building block of most investment portfolios.Assetsare what you own. In many cases, these are investments held in account types such as in 401(k) plans, IRAs, brokerage accounts, and bank accounts.Allocationrefers to how that money is spread out. Taken together, they represent your mix of investments.

The 3 main asset classes are:

• Stocks
• Bonds
• Short-term reserves (cash)

Research has shown that, if you have a diversified portfolio, on average 92% of your experience (the portfolio return variability) can be traced back to how your assets are allocated.* That’s why it’s so important to get asset allocation right.

Stocks can provide the biggest potential for growth, especially over the long term. As a part of your retirement plan, you could own stocks as direct ownership in a company, or as part of a mutual fund or exchange-traded fund that bundles different investments—including hundreds or thousands of stocks and bonds. In exchange for more growth potential, however, you're likely to experience more ups and downs in the value of your investment, making stocks generally the riskiest of the 3 asset classes.

How you think about stocks might change when you’re in retirement, since it’s common for portfolios to get more conservative at this stage. But they can still play an important role in your portfolio, especially helping keep pace with inflation over time.

Short-term reserves are often referred to as cash. In your retirement plan, these can include money market funds and stable value investments. You can also think of money in savings and checking accounts in this group too. These investments seek to provide stability. But potential for growth is limited. This can be a risk when factoring in inflation—the rising cost of things like food, gas, and utilities. If your investments aren’t keeping up with inflation, you’ll lose buying power over time.

Important note:Are you retired but not where you want to be financially? You may feel the urge to get very aggressive with your investments, trying to make up for lost time. Keep in mind this strategy can backfire if markets slump. You could lose a chunk of your nest egg just when you need it.

Here are a few things to keep in mind as you review your current asset mix:

• Age.How old are you, and how long do you expect to live?
• Risk tolerance.How much volatility can you handle?
• Health risk.Health care can be costly as you get older. Are there any health risks you’re aware of now, and how will you deal with health costs that come up later?
• Market risk.Markets can increase. They can drop, too. How will market fluctuations affect your goals?

As you review, you’ll want to see if your mix matches your goals and the tolerance for risk you outlined in yourretirement roadmap. And don’t forget to check back from time to time, as your goals and circ*mstances may change.

When it comes to reducing risk, diversification can be a powerful tool. Putting all your eggs in one basket is risky. If the basket drops, they could all break. With investing, you can lessen your risk by owning many different types of stocks and bonds. These may include exposure to U.S. and international stocks and bonds, different industries, and companies of different sizes.

To balance out your risk, you should have a mix of different kinds of investments. That way, if one kind of investment drops in value, the other may go up, or not drop as much, which can help smooth out the bumps on the road. Diversifying means having different types of investments. It doesn’t guarantee you’ll make a profit or that you won’t lose money.

Your retirement plan money may be in a target-date investment, given their popularity. In 2022, 83% of participants in Vanguard plans used them.***

A target-date investment contains a collection of mutual funds that form a broadly diversified mix of stocks and bonds. So you can pick just one option and be done with investment selection. The target-date investment serves as a complete portfolio and can work for you throughout both your career and retirement. As the investment approaches its target date (the year in the name of the investment), it gradually becomes more conservative. With target-date investments, you should still check the asset mix of your option to make sure it’s appropriate for your current situation.

Note:Target-date investments are subject to the risks of their underlying funds. The year in the investment name refers to the approximate year (the target date) when an investor would retire and leave the workforce. The investment will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. A target-date investment is not guaranteed at any time, including on or after the target date.

If your retirement plan offers advice, turn to our pros. They can select your funds, invest your money, and help you live your best financial life.

See my advice options

*Source:Vanguard.Vanguard’s framework for constructing globally diversified portfolios. 2021.

**Source:U.S. Bureau of Labor Statistics CPI Inflation Calculator.

***Source:Vanguard.How America Saves. 2023.

Whenever you invest, there’s a chance you could lose the money. Bond funds are made up of IOUs, primarily from companies or governments. These funds risk losing value if the debt isn’t repaid on time. Also, bond prices can drop when interest rates rise or the issuer’s reputation suffers.

As its name suggests, a stable value investment tries to keep its share price constant. But this is not guaranteed, and it’s possible to lose money with an investment like this. Unlike bank savings accounts, this investment is not insured by the U.S. government. It’s also not insured by your employer or Vanguard.

Vanguard does not provide individual tax advice. You should discuss your situation with your tax advisor.

Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Advice is provided by Vanguard Advisers, Inc. (VAI), a federally registered investment advisor. Eligibility restrictions may apply. VAI cannot guarantee a profit or prevent a loss.