Investments For A Comfortable Retirement At 59 Years Old

If you're approaching your 60s, it's important to assess your retirement readiness. This involves reviewing your savings and creating a plan for taking distributions from your various accounts to meet your spending needs in retirement. It's also crucial to understand your options for Social Security benefits, as delaying retirement by a few years can allow your savings to continue growing.

- Take advantage of catch-up contributions to tax-favored retirement accounts, such as 401(k)s and IRAs.

- Maintain exposure to stocks, as you still have time to benefit from long-term growth potential.

- Consider adding a meaningful allocation of bonds to your portfolio for more stable, low-earning funds.

- Diversify your portfolio across different asset classes, such as large, small, and mid-size companies, established and emerging international markets, and real estate.

- Consider using a target-date mutual fund or a robo-advisor to create and manage a balanced portfolio.

- Invest in low-risk options, such as Treasury bonds, CDs, and municipal bonds, to offer stability and tax benefits.

Fund your 401(k) to the max

If you're approaching retirement, it's a good idea to start funding your 401(k) to the maximum amount. This is especially true if you're in your 50s or early 60s, as these are likely to be your peak earning years. Funding your 401(k) to the max will allow you to take advantage of compound interest and boost your retirement savings.

The maximum amount you can contribute to your 401(k) is adjusted each year to reflect inflation. In 2024, the maximum contribution is $23,000 for anyone under the age of 50, with an additional catch-up contribution of $7,500 allowed for those aged 50 or older, bringing the total to $30,500. In 2025, the maximum contribution increases to $23,500 for anyone under 50, with the same catch-up contribution of $7,500 for those aged 50 or older. Due to SECURE 2.0, if you are aged 60, 61, or 62, you can make a catch-up contribution of $11,250 in 2025, for a total of $34,750.

It's important to note that the IRS sets clear guidelines for 401(k) contribution limits each year, and you must stay within these limits. Contributing to your 401(k) can provide tax benefits, especially if you have a traditional 401(k). Contributions to a traditional 401(k) lower your taxable income for the year, meaning you'll pay less in taxes. However, you'll need to pay taxes on your withdrawals in retirement. On the other hand, Roth 401(k)s are funded with after-tax dollars, so there's no immediate tax benefit. But your investments grow tax-free, and you won't pay any taxes on your withdrawals in retirement.

If you're able to max out your 401(k), you'll be on track to build a solid nest egg for retirement. However, it's important to consider your entire financial situation before deciding to contribute the maximum. Make sure you are completely out of debt and have an emergency fund in place before maximizing your 401(k) contributions. Additionally, contributing enough to receive your employer's match is always a good idea, even if you're not able to max out your 401(k).

Consider an IRA

If you're approaching retirement, it's important to ensure your financial readiness. A good way to do this is by taking advantage of the full range of accounts available for retirement savings.

An Individual Retirement Account (IRA) is a great option if you don't have a 401(k) plan available at work or if you're already funding one to the maximum. IRAs come in two varieties: traditional and Roth.

With a traditional IRA, the money you contribute is pre-tax, meaning it reduces your taxable income in that year. In 2024 and 2025, the maximum you can contribute to an IRA is $7,000, plus another $1,000 if you're 50 or older. If you're 59 or older, you can make penalty-free withdrawals from your IRA at any time.

On the other hand, with a Roth IRA, you get your tax break when you withdraw the money, as long as it's been at least five years since you contributed to the account. Roth IRAs are a valuable tool for older savers as they provide flexibility to withdraw from pools of money with different tax treatments. Additionally, Roth IRAs are more tax-friendly when it comes to passing money to heirs.

If you're 59, you can make the entire annual catch-up contribution for that year if you turn 50 at the end of the calendar year. For 2024, the income phase-out range for taxpayers making contributions to a Roth IRA is between $146,000 and $161,000 for singles and heads of household, and between $230,000 and $240,000 for married couples filing jointly. These numbers have increased for the 2025 tax year.

Married couples filing their taxes jointly can often fund two IRAs, even if only one spouse has a paid job, using what's known as a spousal IRA.

Diversify your portfolio

Diversifying your portfolio is a crucial aspect of investing, especially as you approach retirement. Diversification can help protect your investments and ensure that you are well-positioned to reach your financial goals. Here are some ways to diversify your portfolio as a 59-year-old:

Asset Allocation

The key to diversification is allocating your investments across various asset classes, such as stocks, bonds, cash, and alternative investments. At 59, you may want to consider adjusting your asset allocation to reduce risk while maintaining growth potential. A common strategy is to increase your allocation to bonds while decreasing your exposure to stocks. For example, a conservative portfolio for someone in their late 50s might include 70%-75% bonds, 15%-20% stocks, and 5%-15% cash or cash equivalents.

Diversification Within Asset Classes

Diversification within asset classes is also important. For equities, ensure you have exposure to large, mid, and small-cap companies, as well as international markets and real estate. For bonds, allocate your investments across short-term, mid-term, and long-term bonds, both domestic and international. This type of diversification can help protect your portfolio from significant losses if one particular market or sector underperforms.

Tax Diversification

Another aspect of diversification to consider is tax treatment. Traditional pre-tax retirement accounts, such as 401(k)s and IRAs, offer tax benefits upfront, while Roth accounts provide tax-free withdrawals in retirement. Diversifying across these account types can give you more flexibility in retirement and potentially reduce your tax burden.

Low-Risk Investments

As you approach retirement, it's essential to balance risk and return. Low-risk investments such as Treasury bonds, certificates of deposit (CDs), and municipal bonds can offer stability and tax benefits. They can help protect your portfolio during market downturns and provide a reliable source of income.

Use of Financial Tools

Online brokers often provide risk profile tools and questionnaires to help you determine your risk tolerance and appropriate asset allocation. Additionally, target-date funds automatically adjust their asset allocation based on your planned retirement year, making them a hands-off option for diversification. However, be mindful of fees associated with these funds, as they can eat into your returns.

By implementing these diversification strategies, you can help ensure that your portfolio is well-balanced and aligned with your financial goals as you approach retirement at 59.

Take advantage of catch-up contributions

If you're approaching your 60s, it's important to take advantage of the "catch-up contributions" that are available to you. These are additional amounts that you can contribute to your retirement accounts on top of the standard contribution limits. This is a great way to boost your retirement savings and ensure that you have enough money set aside for your later years.

For example, with a 401(k) plan, the standard contribution limit for 2025 is $23,500. However, if you're 50 or older, you can contribute an extra $7,500 as a catch-up contribution, giving you a total possible contribution of $30,500. And if you're between the ages of 60 and 63, the catch-up contribution limit is even higher at $11,250, allowing for a total possible contribution of $34,750. This means that if you're in your late 50s, you can contribute a significant amount more to your retirement savings than someone who is younger.

Individual retirement accounts (IRAs) also offer catch-up contributions. The standard contribution limit for IRAs is $7,000 in 2024 and 2025, but if you're 50 or older, you can contribute an additional $1,000, bringing the total possible contribution to $8,000. This extra $1,000 per year can make a big difference in your retirement savings over time.

In addition to taking advantage of catch-up contributions, it's important to maintain a healthy exposure to stocks in your investment portfolio. While it's typical to invest more conservatively as you get older, shifting some of your investments into bonds and other lower-risk assets, stocks still provide growth potential that bonds do not. As someone in your late 50s, you likely still have a decade or more of working years ahead of you, so it's important to maintain a balance of stocks and bonds in your portfolio to take advantage of the long-term growth potential of stocks while managing risk.

Another strategy to consider is diversifying your retirement savings across different types of accounts. In addition to traditional retirement accounts like 401(k)s and IRAs, you may want to consider saving in a taxable account or investing in a Roth IRA or Roth 401(k). Roth accounts can provide tax benefits, as withdrawals are tax-free in retirement, and they offer flexibility in terms of when you can withdraw money without penalty. Additionally, they can be a good way to pass money on to heirs, as they are not subject to required minimum distributions (RMDs) during the owner's lifetime.

Finally, it's important to remember that everyone's financial situation is unique, and there is no one-size-fits-all approach to retirement planning. Consider consulting a financial advisor to help you navigate the different options and create a plan that aligns with your specific goals and circumstances.

Maintain exposure to stocks

When you're approaching retirement, it's important to maintain exposure to stocks. While it's true that you may have less time to recover from losses, stocks still provide growth potential that bonds do not.

As you near retirement, you may want to consider adding a meaningful allocation of bonds to your portfolio to balance the risk. A conservative portfolio might consist of 70% to 75% bonds, 15% to 20% stocks, and 5% to 15% cash or cash equivalents. However, you should remain diversified and invested in both stocks and bonds in an age-appropriate manner.

With more than a decade or two of working years left, it's important to maintain the growth potential of your portfolio through an appropriate allocation to stocks. Stocks provide long-term growth potential, and you will have time to ride out any short-term volatility.

In your 50s, you still have time to boost your retirement savings. You can take advantage of catch-up contributions to tax-favoured retirement accounts. For example, in 2025, people aged 50 and older could contribute an extra $7,500 as a catch-up contribution to their 401(k).

You can further diversify your portfolio by investing in different types of stocks, such as large, small, and mid-size companies, as well as established and emerging international markets. This diversification will help protect your portfolio in case one type of stock experiences a loss.

It's also important to keep in mind that investing always carries risk, and there is no one-size-fits-all approach to retirement planning. Consult a financial advisor to determine the best strategy for your specific circumstances and risk tolerance.

Frequently asked questions