For most people, retirement is their biggest financial goal. To get there, you’ll need to make informed choices for your retirement investments — including a few income streams that can keep making money for you while you’re out and about, living your dreams.

To make that happen, you really only need 3 things:

  1. A retirement investment strategy
  2. Some information about your investment options
  3. A way to track your progress

For that last one, Quicken has you covered. Our suite of financial tracking and planning apps offers a variety of ways to keep tabs on your investments, loans, income streams, expenses, and much more.

For the other two, we’ll cover those right here. Let’s get started!

Retirement investment strategy

Investing for retirement requires a long-term approach, and the budgeting, calculating, and re-budgeting never truly stop. That’s why successfully preparing to leave the workforce requires a comprehensive retirement investment strategy. 

Though the journey looks a bit different for everyone, the process generally involves:

  • Figuring out how much you’ll need to save
  • Choosing a tax-advantaged withdrawal strategy
  • Diversifying your portfolio 
  • Balancing profits with financial security

Let’s take a look at how these steps impact your financial goals.  

Figuring out how much you’ll need to save for retirement

Retirement planning starts by working out how much you’ll need to save by the time you retire. That depends on 2 things — how much you want to spend each month during retirement and how much you expect to bring in through a pension, Social Security, or private income streams.

You’ll also want a bit of a cushion for medical expenses and long-term care.

Typically, experts say you should expect to spend about 70-90% of what you were making before you retired. But your exact savings goal will depend on the lifestyle you want. While some retirees can thrive on $50,000 a year, others require much more. 

Social Security replaces about 40% of the average person’s pre-retirement paycheck. But when you start taking benefits matters. While 67 is technically “full” retirement age, you can increase your benefits up to 24% just by waiting until you’re 70 to collect.

If you want to start playing with actual numbers, Quicken’s retirement calculator can help you explore your options. Add some retirement income in the Retirement (Optional) section to see how that changes the picture!

Choosing a tax-advantaged withdrawal strategy

Ideally, you want to take minimal withdrawals and leave your portfolio as intact as possible — so it can keep producing income for you during retirement. A large portfolio that’s heavy on income-producing assets might fund most or even all of your monthly living expenses without any need for withdrawals. 

What are income-producing assets? They’re investments that produce ongoing income streams, such as stocks that pay dividends, real estate you own and rent out, private business income, and so on.

If your retirement plan is light on income-producing assets, you’ll probably need to withdraw from your retirement accounts or sell a few securities along the way. 

There are also rules that require annual withdrawals at given percentages from certain retirement accounts, including your 401(k), 403(b), 457(b), and traditional IRA accounts. Why? Because you put off paying taxes on that money for years — those withdrawals are when the government finally gets some tax income. So even if you don’t need it, you have to take it and calculate it into your taxable income.

The rules for Roth accounts are different, which follows the same logic — you paid taxes on that money before you contributed it to the account, so the government already got its due. Be sure to look up the rules for any retirement accounts you own or talk with your financial advisor so you know how they work. 

Bottom line: if you need to withdraw from your retirement accounts or investments to meet your monthly living expenses, take your required minimum distributions (RMDs) first. Then make up any remaining difference in whatever way works best for your taxes.

Diversifying your portfolio

You should never invest all of your money into one investment, and retirement is no exception. Diversification – investing in a variety of assets – exposes you to more opportunities for upside while evening out the risk. 

Most well-diversified portfolios build a foundation on stocks, bonds, index funds, and mutual funds. Some investors take this a step further with “alternative assets” like real estate or commodities. 

Because real estate values tend to rise with inflation, and because real estate is an income-producing asset if you rent out your properties, this is a popular investment for many retirees. 

Balancing profits with financial security

When it comes to retirement (or really any investing), it’s important to consider risk and reward based on your age and goals.

Historically, higher risk correlates with bigger swings in your portfolio — with the potential for huge wins and disastrous losses. While it’s tempting to chase returns, high-risk assets can spark terrible declines when the market crashes. 

As a general rule, the more time or money you have, the more you can afford to risk. If your accounts plummet when you’re 27, you still have plenty of time to rebuild. Similarly, if you already have a lot more than you need to retire, you might decide to invest some of that extra cushion into riskier ventures.

However, if you’re approaching retirement age and you need every dime you have, that’s not a good time to take big risks in the market. The list of investments below is a good starting point for getting to know some of the more popular retirement investment options.

The best retirement investments

Generally speaking, a good retirement strategy includes a strong mix of tax-advantaged retirement accounts and diversified investments. 

1. 401(k)s

401(k)s are tax-advantaged retirement plans sponsored by employers. You contribute money from your paycheck into either a traditional or Roth account, then enjoy tax-deferred or tax-free withdrawals in retirement. Some companies even offer an employer match — typically 2–5% of your salary — to supercharge your savings.  

Pros of 401(k)s

  • Higher contribution limits than IRAs
  • Employer match to boost contributions
  • Traditional and Roth variants
  • No income limits 

Cons of 401(k)s

  • Not all employers offer 401(k)s
  • Most plans offer limited investment options
  •  May charge early withdrawal penalties if you’re under 59.5

2. IRAs

Individual retirement accounts (IRAs) are tax-advantaged accounts that also come in 2 varieties — traditional and Roth. 

Traditional IRAs

People often choose these accounts if they expect their taxable income to be lower during retirement than it is today. That’s because traditional IRAs lower your tax burden now. The money you add to a traditional IRA this year is subtracted from your income this year — it looks like you made less money, so you pay less in taxes. You do pay taxes eventually, though, when you withdraw from the account during your retirement. 

Roth IRAs

People often choose these accounts if they expect their taxable income to be the same or higher during retirement than it is today. Roth IRAs accept after-tax contributions, which means you don’t get any write-offs for them this year. However, your qualified withdrawals during retirement are tax-free — you don’t even pay taxes on the value your account gained over the years. Plus, you aren’t usually required to make withdrawals from a Roth IRA during retirement like you are with a traditional IRA. 

Pros of IRAs

  • Tax-advantaged retirement savings plans
  • They aren’t based on your employer so anyone can have one
  • You can have both a 401(k) and an IRA
  • Roth IRAs have no required minimum distributions

Cons of IRAs

  • Annual contribution limits are lower than 401(k)s
  • Roth IRAs have income caps that further limit contributions
  • May charge early withdrawal penalties if you’re under 59.5
  • Traditional IRAs require minimum withdrawals after age 72

3. Annuities

Annuities can supplement your retirement income. In short, you contract with an insurance company to pay them a lump sum today or to make regular payments over time. Then, the insurance company repays you — plus interest — in the future. 

Pros of annuities

  • Can customize your annuity to fit your retirement cash flow needs 
  • Provides long-term, tax-advantaged growth and income
  • Supplements other retirement income

Cons of annuities

  • Early withdrawals may carry a 10% tax penalty
  • Can have high fees compared to other investments

4. Bonds

Bonds are essentially loans you make to the government or to a business that they repay over time with interest. Depending on the bond, you may receive regular interest payments for a certain number of years and then get the loaned amount back at maturity. Other bonds pay your principal plus interest in a lump sum upon maturity. 

Pros

  • Steady, predictable income
  • Plenty of variety in issuers, interest rates, and maturity dates
  • U.S. government bonds are considered practically “risk-free” 
  •  Holding bonds can hedge against stock market volatility

Cons

  • Historically have seen lower gains than stocks
  • Subject to interest rate risk (bond values tend to fall when rates rise)
  • Some bonds restrict purchase amounts or charge penalties for selling early
  • May have high investment minimums 

5. Stocks

Stocks represent ownership in a company. Taken as a whole, they have historically offered positive performance when measured over time. Some stocks are riskier than others, and the stock market as a whole may drop for weeks or months at a time. Still, the S&P 500 equity index has averaged around 10% over the long run.

Pros

  • Offer the opportunity for high returns
  • Generally very liquid — easy to sell or buy

Cons

  • Typically riskier investments than bonds

6. Index funds

Index funds are passively managed “baskets” of securities that aim to track a market benchmark like the S&P 500 or the Dow. Each fund contains dozens to hundreds of securities, providing instant diversification without doing hours of research.  

Pros

  • Low fees
  • Tax-efficient
  • Instant diversification
  • Generally no investment minimums
  • Usually liquid and easy to enter or exit trades 

 Cons

  • Typically match — rather than beat — market returns
  • Can’t add or remove individual assets

7. Mutual funds

Mutual funds pool money from multiple investors to invest in a basket of assets (typically stocks and/or bonds). Each fund issues shares that trade once daily at a set price, called the net asset value (NAV). Passively managed funds follow a benchmark index, while actively managed funds employ a manager to make trading decisions.

Pros

  •  Instant diversification
  •  Convenient and easy way to invest in professionally managed funds
  •  Fees have been coming down, which supports long-term investment

Cons

  • Some funds charge high commissions and/or fees
  • Most mutual funds require high minimum investments — up to $5,000
  • Potentially less tax-efficient than index funds
  • Only trade once daily

8. Personally held real estate

Holding real estate provides a chance to diversify your portfolio while generating income. Some investors prefer to purchase rental properties or even to rent out part of their primary residence. Others flip houses and profit from price appreciation and the fruits of their physical labor. 

Pros

  • Short- and long-term income potential, suitable for different time horizons
  • Real estate historically appreciates over time and tends to track inflation
  • Can leverage purchases with a mortgage 
  • Offer additional tax benefits

Cons

  • Potentially high upfront investment costs
  • Rental properties require work and/or paying a management company
  • Properties may be subject to rent controls
  • Relatively illiquid investments — not easy to buy or sell immediately

9. REITs

Real estate investment trusts (REITs) cut out the hard work of real estate investing. REITs purchase and manage properties, mortgages, or both, generating profits by collecting rent and/or servicing loans. These trusts then issue shares on stock exchanges and pay the bulk of their profits to their investors.

Pros

  • Pay out regular income useful in retirement
  • Offers unique diversification potential
  •  Trade on stock exchanges, offering easier liquidity and access than physical real estate

 Cons

  • Share prices fluctuate with market factors
  • Must pay 90% of their income to investors, limiting reinvestment potential
  • Investors pay ordinary income taxes on dividends
  • Potentially high management fees  

Final thoughts

The investments included here may be popular for retirement strategies, but they still come with risk — past performance never guarantees future results. So be sure to keep your personal risk tolerance, retirement timeline, and goals in mind as you research your options.

In creating your strategy, it’s also extremely important to plan on enjoying your retirement. If the numbers aren’t working, don’t go straight to cutting your budget. Think about what you could do to expand your opportunities. 

Could you keep some hobby income or even a small LLC going on the side doing something you love? Not only does it offer the possibility of additional income, it also makes the money you spend on that hobby (or that LLC) tax deductible!

To do that of course, you’ll need to track your income and expenses so you can claim those deductions each year. If that feels like a challenge, our suite of financial tracking and planning apps offers uniquely customizable categories, tags, and reports that make it easy to track anything you need to — so you can manage your business and household finances all in one place.