Many Americans are behind on retirement investing, but there’s no time like the present to turn it around. Here are the essentials of retirement investing.

While most Americans want to retire by age 67, not many are on track to get there. Two-thirds of 40-somethings have less than $100,000 saved for retirement and 28% of 60-somethings have less than $50,000. As for Millennials, 66% of them don’t feel on track to retire, with 20-somethings ringing in an average $10,500 401(k) balance and 30-somethings ringing in an average $38,400 balance.

Hey, we get it. Retirement investing is hard, and life has a way of happening.

Here’s the thing: there’s no time like the present to turn your retirement investing around. You just have to know where to begin. Here are some essential do’s and don’ts of retirement investing.

DO Understand Your Options

The first step in successful retirement investment is understanding your options.

These can be broken into two categories:

1. Tax-advantaged accounts
2. Taxable accounts

Tax-advantaged retirement accounts, such as 401(k) plans and IRAs, are the most common. These are traditional tax-deferred accounts, which means you don’t pay taxes on income and capital gains earned in the account. Taxable accounts don’t offer any tax breaks, but they may offer more freedom to invest in certain assets depending on what your interests are. As long as you pay attention to taxes, you can still achieve good growth in taxable accounts.

Within your accounts, there are a lot of different types of investments, including:

• Stocks
• Bonds
• Cash and cash equivalents
• Mutual funds
• Exchange-traded funds
• Annuities
• Alternative investments

Stocks, bonds, and cash (along with many related investment products) are considered conventional investments. Alternative investments are pretty much anything that isn’t a stock, bond, or cash, and include things like:

• Fine art
• Antiques
• Real estate
• Private equity
• Hedge funds
• Derivatives
• Precious metals
• Cryptocurrency

Any of these investments can help grow your wealth—it’s just a matter of finding the right combination of investments for your risk tolerance, interests, and timeline. Just pay careful attention to what your account allows. 401(k) plans, which come through an employer, usually offer some form of mutual fund, which works almost exclusively in stocks and bonds. IRAs offer a lot more freedom (it’s basically a tax-deferred wrapper for any investment vehicle) with a few exceptions: fine art, collectibles, life insurance, derivatives, and personal real estate.

DON’T Invest with Emotions or a Gambling Mentality

No matter what accounts you use or your unique combination of investment vehicles, keep in mind that investment is not gambling. It’s not a get-rich-quick scheme either, no matter what Hollywood shows in every movie of Wall Street ever made. Investment is a marathon, not a sprint, and the day-to-day tends to be dull. You see growth over a period of years, not days or months.

And because investment is a strategic art and science and not a gambling sport, you should never make investments based on your emotions. Unfortunately, it’s much easier to fall prey to emotional investing than most people realize.

For example, if the market is doing well, you might get overconfident, underestimate risk, and make decisions that cost you big. On the flipside, if the market does poorly (like the twelve-month roller coaster ride that was 2020), it’s quite easy to succumb to fear and try to either “catch a falling knife” (mistime a purchase when waiting for the lowest price) or tuck your money away in safe bonds that won’t see any benefit of market rebounding.

No matter what the market looks like, keep your cool. Accept that not every investment will be a winner, and that’s alright. Keep your emotions out of the game. If you have a well-balanced portfolio, you’ll be able to insulate your portfolio against losses across the board.

DO Plan for a Long Retirement

To be blunt, a lot of Americans want to retire at age 67 because the Medicare enrollment age is 65. There are two problems with that:

1. Today’s life expectancy makes 65 a purely arbitrary number
2. Americans hope to retire at 67 without accounting for longer lives

In 1965, when Medicare began, the average life expectancy was 70.11 years. That meant the average American in average health retiring at 65 could expect to live roughly another five years. In 2020, the average life expectancy is 78.81 years. That means, on average, an American in good health retiring at 65 needs their retirement savings to last almost three times as long. And that’s just the average—many Americans live well into their eighties and nineties.

Unless you hit your sixties in frail health, you should retire at 65 with enough money to carry you for at least 25 years (your 90th birthday), and that’s assuming you aren’t going to leave anything to your children. Ideally, you should try to keep working for as long as you can, but this isn’t possible for everyone, so you should plan on having retirement savings that carry you 25 years.

DON’T Invest the Same Way Throughout Your Life

Investment is a lifelong process, but the way you invest at 21 is radically different from how you invest at 61—or even 41 or 31, for that matter.

If you’re investing primarily for retirement, then you’re operating on a timeline to grow your wealth. However, your life changes throughout that time period, and your investments should reflect your changing life situation and your investment goals as you approach retirement.

In basic terms, your investment strategy by age should be as risky as you can stomach while you’re young. This gives you the best chance for growth, but if you invest in a loser, you’ll have time to recover your losses. As you age, acquire more life responsibilities (kids and a mortgage, for instance), and approach your retirement age, you’ll shift your contributions, but in general, your strategy should slowly taper down on risk as you approach your retirement age.

Let’s Bolster Your Retirement Investing

Retirement investing is an art and a science. This list isn’t all inclusive, but it’s a great place to get started. After that, try to keep learning as much as you can, invest in things that matter to you, and be aggressive about prioritizing your financial health.

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