Retirement Savings: 6 Investing Strategies for Retirees
After you retire, there are usually a number of reasons why you might want to change up your investment strategy. Based on your life expectancy, your income requirements, your lack of a job and other factors, things just aren’t the same as when you were 20 years old.
While it’s a mistake to make extreme changes to your portfolio allocation, it’s also dangerous to overlook the fact that some alterations should likely be made. Although everyone’s personal financial situation is different, there are some things that all retirees should consider when reviewing their portfolios. Here are the most important ones.
Understand Your Needs
Before you can devise a sensible portfolio strategy — at any age — you’ll need to understand your needs. Some retirees will need more income out of their portfolios than others, for example, and it’s important to nail this down before you start making any changes to your allocation.
First, you’ll want to review all of your sources of income, from your retirement accounts to your Social Security benefit to pensions and annuities and so on. Then, you’ll want to draft a realistic retirement budget to see if you have sufficient income to cover your needs. From there, you can make adjustments to your investment strategy that make sense.
Downshift Your Risk
Regardless of your needs, it’s generally appropriate for most retirees to take some risk off the table when it comes to their portfolios. The reason this is important is twofold.
First, when you’re retired, by definition you don’t have consistent income from a job. This makes it difficult-to-impossible to replace money you might lose from a bad year or two in the market. The second is the time factor. If you’re 30 and you encounter a bear market, you have plenty of time to recover from it. But if you’re 65 and you lose 30% of your portfolio the year you retire, you’ll have to earn back 43% just to break even.
The realities of a retirement portfolio are that you might never recover, as you’ll need to draw money out of your account even when it is down to simply pay your bills. Regardless of how you look at it, risking a big loss in your portfolio is too great when you aren’t in a position to recover from it.
However, Don’t Overlook Your Need for Growth
Part of the art of constructing a retirement portfolio is that you have to balance your need for capital preservation with your need for growth. While you can’t risk losing everything you have, you still need some capital appreciation in your account.
With retirements often eclipsing 30 years in length, you’ll need growth to stave off the effects of inflation that can wear down the value of a fixed-income-only portfolio. Run various return scenarios through an investment calculator or speak with a financial advisor to find the right balance of income, growth and risk in your own portfolio.
Assess Your Health Situation
Your health situation is one of the most important variables in a retirement strategy, but unfortunately, it’s also the most unpredictable. However, you should aim to play the percentages the best that you can to match your portfolio allocation with your life expectancy.
If you are in good health and have a strong family medical history, for example, you might want to project a long retirement, in which case you might need more growth investments. If you have chronic health issues and a poor family medical history, on the other hand, you might want to maximize your income as soon as possible.
Maximize Your Income Strategy
Generally speaking, retirees need to derive income from at least a portion of their retirement portfolios, as their main sources of income — their jobs — are no longer around. But devising an income strategy involves more than simply swapping all your stocks into bonds. You’ll need to calculate just how much income you’ll need to cover your expenses, and then determine the best risk-reward profile to generate that amount.
In the current environment, for example, some retirees might be able to get by with an ultra-low-risk portfolio of Treasury bills that yield more than 5%. Others might consider adding higher-paying, higher-risk options such as preferred stocks, ETFs, closed-end funds or even high-dividend stocks to the mix. The key is to generate enough income to meet your needs while not taking on too much risk.
Choose the Right Social Security Strategy
A cornerstone of any retiree’s investment strategy is Social Security. Depending on when you file for benefits, you may receive hundreds of dollars more or less than your “full retirement benefit,” which is paid out at age 67 for those born in 1960 or later.
Claiming as early as age 62 gets you many more checks, but they may be reduced by as much as 30%. Waiting until age 70, on the other hand, can give your payout as much as a 24% boost. This makes the timing of your Social Security filing critical to your overall portfolio strategy.
More From GOBankingRates
- Side Gig: Earn Up To $200/Hour With This Easy-To-Start Job, No College Degree Required
- How To Get Free Money: 13 Proven Ways
- 3 Things You Must Do When Your Savings Reach $50,000
- 5 Ways To Elevate Your Finances Daily
