5 Investment Accounts You Need To Retire Comfortably — Are You Missing These?
Written by
Laura Bogart
Edited by
Kristen Mae
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You might think you’re on your way to being set for retirement. Through your employer, you’ve got your 401(k) or 403(b), and all you have to do is keep working until, well, you don’t have to anymore. Easy peasy, right? Not quite.
If you’re only relying on one type of investment to pad your nest for retirement, you might end up with a nest egg that’s not as robust as you hoped. This could leave you facing financial shortfalls, especially as people are living longer than ever before and healthcare costs continue to rise.
Fortunately, it’s not too late to diversify your retirement investments. The sooner you start, the better. Below are five types of accounts to help you set the stage for a more comfortable retirement.
1. Roth IRA
If you’ve looked into retirement savings options, you’ve likely heard of a Roth IRA. But what is it, and what does it actually do for you? Simply put, a Roth IRA is an Individual Retirement Account (IRA) where you contribute after-tax dollars. The trade-off? Your contributions and earnings grow tax-free, and qualified withdrawals in retirement are tax-free as well.
You can withdraw your contributions (not earnings) tax-free at any time without penalty, but to enjoy the full tax benefits, you’ll need to be at least 59½ years old and have held the account for at least five years. This flexibility and tax advantage make Roth IRAs especially popular among younger investors who anticipate being in a higher tax bracket when they retire.
2. Traditional IRA
While the perks of a Roth IRA are self-evident; the OG IRA comes with its fair share of benefits. Like its Roth counterpart, a traditional IRA allows your money to grow tax-deferred, but with a key difference: your contributions may be tax-deductible in the year you make them.
Eligibility for these deductions depends on factors like your income and whether you have access to an employer-sponsored retirement plan. Contributions to a traditional IRA are capped annually, and you’ll pay taxes on withdrawals in retirement, but it’s still a solid option for boosting your savings.
3. Target-Date Funds
A target-date fund is exactly what it sounds like — a low-maintenance, long-term investment option that is automatically adjusted over the years as you approach a “target date,” aka your retirement date. For example, if you plan to retire in 2040, a target-date fund aligned with that year will gradually shift from higher-risk investments (like stocks) to more conservative ones (like bonds) as the date approaches.
This “set it and forget it” approach is ideal for investors who want a diversified portfolio without having to actively manage their allocations. Keep in mind that fees and performance can vary by fund, so it’s worth comparing your options.
4. Mutual Funds
Think of a mutual fund as a pooled investment vehicle: It combines money from multiple investors to buy a diverse range of securities, such as stocks, bonds and short-term debt. Each investor owns shares of the fund, and its performance is determined by the value of its underlying assets (minus fees).
Professional portfolio managers handle mutual funds, making investment decisions to achieve specific objectives, such as growth or income. When selecting a mutual fund, look for options with low fees, strong historical performance, and a mix of investments that align with your financial goals and risk tolerance. Many funds also offer detailed prospectuses, making it easier to evaluate how well they fit into your retirement strategy.
5. ETFs
ETFs, or exchange-traded funds, are a lot like mutual funds, but with a notable difference: ETFs are traded on stock exchanges like individual stocks, allowing for greater flexibility. This means you can buy or sell shares throughout the trading day at market prices, rather than at the end-of-day price as with mutual funds.
ETFs also tend to have lower expense ratios and a lower price per share compared to the minimums required to participate in a mutual fund, making them an attractive option for cost-conscious investors. Jeff Reeves of U.S. News & World Report emphasized the value of ETFs for retirees, stating: “Long-term ETF investing in low-cost index funds isn’t particularly flashy. But it simply makes sense. That’s true for new investors looking for a cost-effective approach as well as older folks who still have a good 20 to 30 years of expenses to shoulder between retirement and their end of life.”
Are You Missing Any of These?
A 401(k) or 403(b) is a great starting point, but it’s not the whole picture. To retire comfortably, you’ll need to diversify your investments across multiple types of accounts. Each of these additional options offers unique benefits that can help you build a nest egg capable of sustaining you through retirement.
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