Determining Retirement Plan Investment Allocation

Deciding how to invest your retirement plan balance can be difficult. Most retirement plans provide many investment options and choosing the best option for you can be challenging.

There are three main areas to help you determine the best investments for your retirement account: goals (retirement income needs, time, and balance), risk tolerance (comfortability with market fluctuations), and existing balance (including other savings).

Retirement Income Needs: Your household income goal at retirement is an important factor in determining your investment allocation while you are working and actively contributing. Having clear and defined goals is important for measuring your progress. Participants closer to retirement need to focus on their limiting factor of time until retirement in determining their goals.

Risk Tolerance: Your timeframe until retirement and your comfortability should determine the amount of risk you’re willing to take.

If you have more time until you retire, investing more aggressively may allow for more long-term market growth. On the other hand, investing too conservatively in your early years can prevent you from reaching your savings goals in the future.

As you get closer to retirement, you may want to consider gradually shifting your investments to a more conservative allocation. By slowly shifting your investments over time, you can continue taking advantage of market growth and lowering your exposure to market fluctuations.

Existing Balances: When deciding how to invest your balance, consider your existing household retirement savings. Looking at your overall household savings and the risk level of your other investments will help you determine how to allocate your retirement account.

If you’re 10 years away from retirement with a balance of $10,000, you don’t want to invest the same way as someone with $1 million already saved. If you’re behind on saving for retirement, this may mean you should invest more aggressively to try to grow your balance more quickly.

Talk to your Avantax financial planning consultant to help determine your best option.