Retirement investing: 3 key phases of the journey to retirement

• Everyone has a different vision of what retirement looks like. Setting a vision for how you want to spend your “golden years” is the first step in establishing your retirement portfolio.
• Most people go through three phases in their financial journey — wealth accumulation, wealth preservation, and income generation — which each have specific investing implications.
• For an automated solution that navigates the journey to retirement, iShares Target Date ETFs offer access to a diversified, low-cost retirement portfolio that adjusts the asset allocation for you to target the right risk at the right time.

Investing for retirement can feel daunting but it can also be fun. Estimating how much you need to save for retirement requires each of us to do some daydreaming.

You can ask yourself questions like: What do you want your retirement to look like? How do you plan to spend your time in retirement? Where do you want to live?

Everyone has a different vision of what they want their retirement to look like. Whether you want to travel, volunteer, focus on family and friends, or spend time on hobbies will impact how much you're going to need to save.

After envisioning what you’d like retirement to look like, it’s time to turn your attention to your investments, and the steps you can take to help assure you retire comfortably.

Integral to investing for retirement is understanding your risk tolerance. While everyone’s risk tolerance is unique, there are three general phases in a financial journey that most of us travel through on the path to retirement.

In the early years of your career, portfolios should focus primarily on growth. With decades to benefit from potential compound interest — the interest you earn on interest generated by a portfolio — and with more time to recover from market swings, the asset allocation in the accumulation phase should tilt heavily toward investments with higher potential for growth, like stocks. This does not mean, of course, to hold one or two high-flying stocks, but diversifying risk across the entire market.

As you approach retirement, priorities shift from growing the portfolio to preserving the wealth accumulated in phase one. This transition entails a gradual portfolio shift from focusing on equities to broadening your investments to other asset classes that can help balance out the ups and downs of the stock market. Consider adding bonds to your portfolio as they tend to provide more income, can help lower overall risk, and historically offer more conservative returns than equities.

Maintaining an allocation to stocks, albeit a smaller one than in the accumulation phase, reduces the impact of a market drawdown, but can help you keep pace with inflation and reduce the risk of exiting the market completely at a low.

In retirement, consistent income and risk minimization become tantamount as investors withdraw from individual retirement arrangements (IRAs) and other accounts. During this period, investors may consider holding more bonds than stocks. One caveat:  While selecting conservative investments can help reduce overall risk, the risk of running out or outliving your nest egg increases too. This is why many retirement portfolios still maintain some allocation to stocks.

Of course, any portfolio should be reviewed at least annually. Mapping out a budget, regularly reviewing portfolio, and monitoring taxes are a few considerations to keep in mind when making the transition to retirement.

To help make this process easier, the iShares Core Portfolio Builder tool can help you visualize how to create a diversified portfolio using Core ETFs. For a solution that navigates the journey to retirement, iShares Target Date ETFs offer access to a diversified, low-cost retirement focused portfolio that adjusts the asset allocation for you to target the right risk at the right time.