Should You Still Invest in Your 70s?
After a lifetime of socking away money for retirement, many investors ask themselves, “should I invest in my 70s?” The answer is unequivocally “yes.” A real concern after you retire is that you may outlive your income, so it’s important to take steps to prevent that. This doesn’t mean that you should keep the same aggressive, stock-heavy portfolio you may have managed during your working career. But it does mean that you generally shouldn’t keep your entire nest egg in a savings account at a traditional bank, which often provides you with a negative return after factoring in taxes and inflation.
Although you should always consult with your financial advisor before making any portfolio changes, here are some smart options for investing in your 70s that can help you earn at least a bit more than a typical bank savings account.
Equity Index Funds
There’s no getting around the fact that historically, stocks have provided a higher long-term return than bonds and cash. While you likely want to dial down the risk of your portfolio after you retire, you may well be served by keeping at least a portion of your assets in stocks. The primary reason for this is increased longevity in America. If you retire at age 65, you may well have 30 or more years of life still to come. Over that period of time, you’ll be able to recover from the occasional stock corrections and bear markets and achieve a higher long-term return.
Equity index funds are a good option for the stock portion of your portfolio because they are likely to recover from bear markets and go on to new highs over time, as they have always done in the past. With individual stocks, you may pick the wrong one that may never recover from a bad selloff.
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Dividend-paying stocks are another good option for the equity portion of your retirement portfolio. Generally, stocks that pay high dividends are mature companies in stable industries that provide a rising cash flow over time. While they may not offer huge growth potential, they offer quarterly income while being much more stable than small, speculative stocks. With interest rates still relatively low, many dividend-paying stocks pay more income than you could receive from CDs and savings accounts, while still offering the potential for growth.
Fixed annuities can be a great option if you’re concerned about outliving your funds. While variations exist, traditional fixed annuities provide regular payments for the rest of your life. While the interest rate may not be exceptional, the certainty of having income no matter how long you live makes fixed annuities worth considering. Annuities can get complex in terms of taxation and potential withdrawal penalties, so be sure to talk with your financial advisor.
Certificates of Deposit
Certificates of deposit are popular with older investors because they typically pay more interest than a regular savings account but also offer FDIC insurance, guaranteeing investors against the loss of their principal. One popular investment strategy is to “ladder” CDs, by purchasing one that matures each year over a period of time, such as five or 10 years. As each CD matures, investors purchase a new CD at the end of the ladder.
Treasury Inflation-Protected Securities (TIPS)
Treasury Inflation-Protected Securities, or TIPS, can be a good option for a portion of a retiree’s diversified portfolio. TIPS provide protection against inflation by increasing (or decreasing) their principal amount in line with current inflation rates. Interest is paid twice per year based on the current principal amount. This means that in an inflationary environment, both your principal value and the amount of interest you receive will rise. Of course, the opposite is also true, as you’ll see declining principal and interest payments during deflationary periods.
High-Yield Online Savings Accounts
Although savings accounts won’t grow your money by much, there are some options that are better than others. Many online banks offer much higher yields than traditional brick-and-mortar banks. For example, as of Aug. 31, the average national savings yield was still just 0.13%, but many online savings banks pay 1.70% or even more, all while carrying the same FDIC insurance.
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