Build your retirement portfolio

"How should I invest?"

It's a question you never really retire from. Whether you're just starting your career, entering retirement, or somewhere in between, there are key investing decisions to make.

In fact, the same considerations—your goal, tolerance for risk, and time horizon—that applied on day one apply throughout your golden years.

There are, however, special considerations retirees may want to keep in mind.

You might not want to retire from the market

If you're drawing income from your retirement account, it may seem as if stocks and their risk have no place in your portfolio. Why take the chance that a stock market downturn will shrink the savings you're depending on?

Because stocks can help you avoid another danger in retirement—Inflation risk. Remember that retirement can stretch to three decades or longer. Over a 30-year retirement, a moderate inflation rate of 2.5% would cut the buying power of your savings in half.

While stocks are subject to market risk, their potential for long-term gains increases the chance that your buying power will stay ahead of inflation as you withdraw your money.

Creating your investment mix in retirement

There's no one right way to invest in retirement. One path to consider is investing in a single Vanguard Target Retirement Fund. These funds are designed so that a single one can serve as a complete portfolio throughout your career and retirement.

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

If you prefer to create your own portfolio, you consider using the mix for the Target Retirement Income Fund as your starting point. This fund is designed specifically for retirees and holds a mix of 30% stocks and 70% bonds. You can also use Vanguard's Investor Questionnaire to get a recommended mix of stocks and bonds for your portfolio.

Keep in mind that all investing is subject to risk, including the possible loss of the money you invest. Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.

Gliding toward your retirement mix

You don't need to completely change your investments on the day you retire. Consider making a gradual move toward your target retirement portfolio.

For example, take a look at how Target Retirement Funds shift their investments over time.

Notice that a Target Retirement Fund doesn't reach its final investment mix until well after an investor retires. This gradual process reduces the chance that a lurch in the market will cause irreparable damage.

Don't be afraid to ask for help

If you are in or nearing retirement, it can be a good idea to engage the services of a financial advisor. There are many things to consider: retirement income, tax planning, health care, Social Security. It's time to plan financially for the rest of your life.

Action steps

To build your retirement portfolio:

  • Determine your tolerance for risk. Vanguard's Investor Questionnaire can help you.
  • Consider a diversified portfolio that includes stocks.
  • Consider investing in a Target Retirement Fund or using one as a template for a portfolio you select yourself.
  • Remember to review your investment mix at least once a year.

Advisory services are provided by Vanguard Advisers, Inc., a federally registered investment advisor and an affiliate of The Vanguard Group, Inc.