Retirement - Defined by You

If you're saving for retirement, you should consider a tax-advantaged retirement account such as a Roth or traditional individual retirement account, your company's 401(k), and 403(b) plans. Also, find out if your employer offers matching contributions when you participate in its retirement plan. If so, that's where your investment should start.

Conservative investors are usually worried about putting their principal at risk -- a wise concern if you're nearing retirement. If that's the case for you, you may want to try some low-risk investments. For example, there are insured deposits with a bank or credit union. You could try savings bonds or U.S. government marketable securities. While these marketable securities will fluctuate in value, you're guaranteed to receive the face value of the security at maturity.

There's another risk besides risk to principal, and that's purchasing-power risk. To increase your purchasing power in retirement, your investments must earn a yield higher than the rate of inflation. Series I savings bonds and Treasury inflation-protected securities, or TIPS, pay yields that are adjusted for inflation. But current purchases of the Series I savings bond don't pay a yield above the inflation rate, and most TIPS maturities have had their prices bid up to the point where buyers earn a yield that's less than inflation except in the longest (30-year) maturities.

You have many other options. A plan I've seen recently allows investors to buy fractional shares of stocks and exchange-traded funds, or ETFs. It also allows purchases of mutual funds with low commission rates and no account minimums. Its automatic investment program allows you to make regular contributions into your account. And it's not the only game in town when it comes to automatic investment plans.

While an imperfect substitute for professional financial advice, an asset-allocation calculator can help determine a starting point for your mix of investments.

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