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Investors who are close to or in retirement certainly should be thinking differently than those who have just started their career, but how?

Dan Keady, chief financial strategist at TIAA, told ThinkAdvisor how three age groups — workers early in their careers, at mid-career and near or in retirement — should be making different investment decisions, and how advisors can select the best routes for them to do so.

Near or in Retirement

Some of these investors who have suffered steep portfolio declines may need to “go back and review their plan,” Keady says. “They may have to work a little bit longer or perhaps spend a little bit less in retirement.”

That said, he points out that those nearing retirement most likely have a balanced portfolio of stocks and bonds, therefore won’t be as affected by stock market moves as more aggressive investors will. He notes they many also have some guaranteed income in terms of annuities or pensions that can be drawn upon before Social Security.

He says they look at three areas: Social Security, and how to optimize those payments; annuities, and if they make sense for client portfolios; and investment portfolios. For those who are still a few years away from retirement, he suggests a Social Security bridge strategy, such as a CD ladder, to cover expenses for three years or so.

“It’s a combination of making sure that those gap years between when a person retires and when optimally [they] start Social Security are covered by using those kind of sources,” he said.

He also points out that those on the cusp of retirement, by having a well-rounded portfolio of stocks, bonds and annuities, feel safer. “That creates some psychological wellness and it’s hard to quantify it, but It’s equally important to the mathematics,” he says.

Mid-Career Investors

These years are full of financial obligations, like child-rearing, buying a home and saving for college, but also comes with some of the highest earning years. “It can be an overwhelming time for people, and is a great place when advisors can add value in doing the basics and help clients think through their goals and time horizons,” Keady says.

This includes having an emergency fund that should be able to cover six months of expenses.

That said, goals-based planning is important for this group, and advisors should discuss with clients how they should be invested and why, “because their goals for retirement, which is long term, certainly could be more aggressive. Even if [their portfolio] is down today, it makes sense to be more aggressive.”

In thinking they have 15 to 20 years until retirement, they can invest in stocks and bonds, “but we think they should broaden the offerings to direct real estate funds, and various alternatives like annuities,” he says. “If you want guaranteed income and to take control for when you retire, and not being knocked out because of market downturns, start building guaranteed income through a fixed annuity that could later annuitize that income. You do this over a protracted period of time simply by putting a little less in bonds.”

He adds that there will be more options for annuities in plans going forward thanks to the Secure Act.

Early Career

The best advice is to “be more aggressive when you’re young.” Market drops are the time to buy in, Keady says. “Younger people need to keep their perspective on their time horizon, and quite frankly, if they’re in target date funds and there are 40 years to retirement, the only thing that means is buying more shares today. Those contributions will really enhance your retirement.”

He likes the idea of target date funds but says they have one fatal flaw: They doesn’t create a guaranteed income stream, as annuities do. And as younger people today may not have as “robust” of Social Security income streams as those today, they will need to create a guaranteed income stream to make up that difference.

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