When you were making contributions during your earlier working years, you may have invested somewhat aggressively to seek account growth. You knew that you had time to ride out any ups and downs in the market. But now that you’re retiring, your investment objectives change. Now you will be using your savings as a source of income and at least a portion of your account may be needed in less than 3-5 years. You may want to consider transferring all or a portion of your assets to a more conservative portfolio to ensure that the funds you will need will be available when you need them.

However, becoming a very conservative investor at the time of retirement is probably not the best strategy. While your investments may feel safer, you also increase the chance of running out of savings before you die. Funds that are too conservatively invested may not even keep up with inflation over time. Instead, what you will want to do is develop an investment plan.

Revising Your Retirement Investment Time Horizon

Investment objectives during the time retirement funds are being withdrawn are different than when the money is being saved. There is less time to make up any market losses. It is tempting to invest very conservatively during this time in an attempt to avoid any loss.

Although investing very conservatively at this time seems appealing, it might be more appropriate to continue investing at least some of the portfolio with growth in mind. There are good reasons to seek balance between continued growth for the longer-term needs while protecting savings to support near-term withdrawals. Today, many retirees can look forward to several decades of retirement. The cumulative impact of inflation over these decades, even at modest rates, will erode the dollar’s purchasing power. Funds might be used over many years, so the eventual investing horizon could still be long enough to justify a fairly long-term investing strategy.

When you create your retirement portfolio, ask yourself how and when you will use the funds. Your answers will help set investment time horizons for various accounts. For example, you may decide to exhaust other retirement income sources before using the funds in a tax-advantaged account. In that case, you’d probably have a longer time horizon. If, on the other hand, you plan to purchase your dream retirement home, you’ll need the funds sooner.

As a rule, the longer the time before you plan to use the funds, the more you can invest in less predictable asset classes that historically have had greater potential for long-term returns, such as stocks or stock funds. If your time horizon is shorter, you’ll probably invest more in conservative bond, stable value, money market, and short-term bond funds.

Your Investment Strategy: Actively Manage or Simplify

Once retired, you may want to actively manage your portfolio and make decisions about investments. Or you may decide to simplify your investment portfolio responsibilities.

ICMA-RC has developed two investment vehicles that free you of routine investment decisions. Known as a fund of funds approach*, one is based on target date investing and one is based on target risk investing.

Target date investing (Vantagepoint Milestone Funds)*

Target date investing allows investors to select a single diversified fund that meets their investment time horizons. ICMA-RC’s target date investments are the Vantagepoint Milestone Funds.

Here’s how they work: Funds are named based on a target year for distributions. You decide on your target date and choose the fund closest to that year.

ICMA-RC’s investments experts do the rest, automatically rebalancing a combination of equity and fixed income funds in order to maintain a target fund balance. As a Milestone Fund approaches its target date, it is reallocated, or aged, to reflect an increasingly conservative asset mix to reduce risk.

Target risk investing (Vantagepoint Model Portfolio Funds)*

Target risk investing allows investors to select one fully diversified fund designed to meet individual time horizons and risk tolerances. ICMA-RC’s target risk investments consist of five Vantagepoint Model Portfolio Funds.

By investing in Model Portfolio Funds, you have a diversified portfolio managed by experienced professionals. Here’s how they work: After evaluating your time horizon and risk tolerance, you select a Model Portfolio Fund that fits your criteria. ICMA-RC investment experts allocate assets, select investments, and periodically rebalance the funds, ensuring that your account is consistently following its stated investment objectives.

Consolidating Retirement Assets

One approach to simplifying your financials is consolidating your retirement accounts to one plan or to an IRA. However, leaving your retirement account in your employer-sponsored plan can be your best option.

The employer sponsoring a retirement plan has a fiduciary obligation to serve your best interests, not the interests of a firm or individual selling investments. Fees are often lower. If your plan administrator is ICMA-RC, you are never charged any sales commissions or transaction fees. Your ICMA-RC plan has a full range of prudent retirement investment options continuously monitored by professionals and allows the maximum withdrawal flexibility permitted by law.

Before you take action, you should also consider these factors:

• The source of the advice: Does the person encouraging the move receive a commission?
• Taxes: Will you have to pay taxes on the withdrawal from the tax-advantaged account? Be skeptical of advice promising that your investments will offset taxes.
• Fees and loads: Brokerage accounts charge loads or sales commissions, possibly charge higher fees for low-balance accounts, may require minimum balances, and/or charge transaction fees whenever investment changes are made.

Please be advised that with “Fund of Funds” arrangements, additional underlying fees may apply. Please consult the prospectus for details.