Personal Retirement

Investing for Retirement

Investing for Retirement
  • Download


There are four fundamental interconnected financial behaviors that determine your ability to achieve your targeted retirement outcome: Earning, Spending, Investing and Insuring (ESII).TM As life events shift and alter our course, you must continually reprioritize and balance these behaviors while maintaining a focus on your retirement target. Use this framework to develop financial plans and course-correct as your life inevitably changes.

In this paper, we discuss the Investing behavior and its critical role in preparing for and funding your retirement.

Investing Equations

Investing can be represented simply with two basic equations.



Or, in other words, whatever income you do not spend is money available for you to save and invest. And money has the potential to grow when it is given time to earn a return.

It Pays to Start Early, But It's Never Too Late

The chart on the right illustrates several hypothetical investment timelines. Starting early has its advantages, particularly if you are between ages 25 and 35.

Even for the 45-year-old, compounding can be very effective.

While the benefits of compounding are less dramatic for the 55-year-old, a disciplined savings regimen still adds up significantly, especially if continued into the retirement years.

It Pays to Start Early

For illustrative purposes only and does not represent the results of any investment. Assumes the investor contributes $10,000 every year for the number of years indicated and earns an average return of 7.4% in a U.S. equity portfolio. 7.4% is the BNY Mellon Investment Management 10-year capital market assumption for U.S. Equity 1015-2024.It does not take into account volatility of returns or sequence of returns which could negatively or positively impact the hypothetical projection.

Risk vs. Reward

Investors typically begin with low-risk vehicles like FDIC-insured bank accounts until they have accumulated a cushion to cover six to 12 months of living expenses. Once that cash cushion is in place, they can begin to diversify with a mix of bonds, equities and possibly other securities. Investments involve varying degrees of risk in exchange for the potential to earn greater returns. Generally, investments that aim for higher returns come with more risk than investments aiming for lower returns.

Risk can range from conservative and moderately conservative to moderately aggressive, aggressive and very aggressive. Appetite for risk, also known as “risk-tolerance,” varies through the life cycle and from person to person. The higher rewards of investing often come with higher risks. Generally speaking, the higher a security’s return potential, the greater the risk —and vice versa.

Until you have sufficient savings, risk should be conservative. As personal assets grow, and when there are many years until retirement, you can take on more risk since you have time to recover from any unexpected short- term market declines. As you approach and enter retirement, investment risk again becomes more conservative to lock in capital gains and portfolio value, and avoid incurring unrecoverable losses should an unexpected market decline occur. Later in retirement, if the asset base is large enough and income is sufficiently assured, you may be able to assume more risk with a more aggressive investment strategy with the goal of increasing the size of your legacy.

Risk vs. Reward

Invest with Goals

Goals-based investing is based on behavioral finance studies where individuals use mental accounting to imagine separate buckets of money dedicated to specific goals. This makes saving and investing easier by breaking life’s savings goals into achievable sub-plans that aggregate to an overall investment and income portfolio. That portfolio accumulates during the working years and becomes a source of income through retirement.



Each individual has his or her own set and ranking of portfolios. Priorities will evolve over time.



Different goals have different time horizons allowing for different levels of investment risk.

Time Horizon and Risk Tolerance

How long will it take before you need to start drawing money from your portfolio? The answer to that has to do with time horizon, which is the length of time over which your investments are held before they are cashed in.

There are different time horizons to meet different financial goals — such as saving for a house, starting a college fund, or seeking a financially secure retirement. In general, short-term goals can be met with more conservative, less risky investments. Conversely, long-term goals may require and allow more aggressive, riskier investments — because a longer period of time gives you the ability to ride out short-term market fluctuations.

Diversification Through Asset Allocation

Similar to the advice, “don’t put all your eggs in one basket,” diversification is a portfolio strategy combining a variety of assets to reduce the overall risk of an investment portfolio. While it does not guarantee against loss, diversification is critical to reaching your long-range financial goals while minimizing risk.

To construct a diversified portfolio, invest in different asset classes, such as international and domestic bonds, international and domestic equities, and, with the guidance of an advisor, certain alternative investments. Asset allocation helps reduce the risk of volatility associated with any one particular investment by apportioning your investments across several different categories of investments.

Work with a financial advisor to determine the portfolio allocations that will best suit your goals and risk tolerance. Below are sample portfolios for illustrative purposes.

Money that will be needed within one year should generally be kept in low- risk, highly liquid bank or money market accounts. The allocations shown are initial allocations. As the intended investment purpose date approaches, the portfolio should be regularly reallocated to more conservative investments to help ensure that unforeseen market events don’t negatively impact your portfolio savings and the growth is locked in.


Short-term: time horizon 2-5 years

Common examples of short-term portfolio accumulation goals: money for automobile down-payments and purchases, college expenses, vacations, auto purchases, home improvements.


Intermediate-term: time horizon 6-10 years

Common examples of intermediate-term portfolio accumulation goals: college savings accounts for young children, down payment on a home, retirement accounts within six to 10 years of retirement.



Common examples of long-term portfolio accumulation goals: retirement accounts for people at least 10 years from retirement, legacy accounts.

These sample portfolios are not intended to represent investment advice that is appropriate for all investors. Each investor’s portfolio must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investing time horizon, tax situation and other relevant factors. The categorization of sample portfolios as “conservative,” “moderate” and “aggressive” is relative. BNY Mellon does not recommend any specific asset allocations.

This material does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted.

The principal value and return on an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

Retirement Accounts

Investments can be held in retirement and non-retirement accounts. Depending on the type, retirement accounts offer tax-deductible contributions, tax-deferred growth, tax-free withdrawals or some combination thereof. Examples include — but are not limited to — Traditional IRAs, Roth IRAs, 401(k) plans, 403(b) plans, tax-deferred annuities and others. These vehicles have the potential to grow money faster and with fewer taxes than investments in non-retirement accounts. Most have limits on how much of your earnings can be contributed to them each year and have penalties for withdrawals prior to your retirement.

Non-retirement accounts allow nearly unlimited contributions and withdrawals, but are subject to combinations of ordinary annual income taxes and capital gains taxes. Paying taxes on investments each year can slow the rate of investment growth. A typical retirement investment strategy, after savings accounts are funded, is to maximize contributions to the tax-favorable retirement accounts to earn employer-matching contributions where possible and to maximize the benefits of long-term tax-deferral. In each year, after the retirement accounts are funded, additional money can be invested in non-retirement vehicles that can be held for the long-term.

Wise Investing Through the Years

Wise Investing Through the Years

Developing Healthy Investment Habits

Developing Healthy Investment Habits<

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. Contact your financial advisor to obtain a prospectus, or a summary prospectus, if available, that contains this and other information about a fund, and read it carefully before investing.

This information is general in nature and not intended to constitute tax or estate planning advice. Please consult your tax or estate planning advisor for more detailed information on these issues and advice on your specific situation.

BNY Mellon Retirement personnel act as licensed representatives of MBSC Securities Corporation (a registered broker-dealer) to offer securities, and act as officers of The Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds as well as to offer separate accounts managed by BNY Mellon Investment Management firms.

This material is not intended as an offer to sell or a solicitation of an offer to buy any security, and it is not provided as a sales or advertising communication and does not constitute investment advice. MBSC Securities Corporation, a registered broker-dealer, FINRA member and wholly-owned subsidiary of The Bank of New York Mellon Corporation, has entered into agreements to offer securities in the U.S. on behalf of certain BNY Mellon Investment Management firms and as distributor of the above mutual funds.

BNY Mellon Investment Management is one of the world’s leading investment management organizations, and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management service and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.