I’m a Financial Advisor: Here Are 7 Investments I’ll Sell Before I Retire
Written by
Heather Altamirano
Edited by
Molly Sullivan
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Retirement can be an exciting new chapter in life, but also a nerve-wracking one as retirees transition from a steady paycheck to savings. To help ease the financial burden, many turn their portfolios into cash or other forms of equity by selling less desirable investments.
To strategize the smartest way to supplement income by liquidating investment options, GOBankingRates spoke with seasoned financial advisors, who shared their valuable insights on which investments to sell in retirement — and the reasoning behind their recommendations.
Municipal Bonds
“A municipal bond is a debt instrument issued by state and local governments as a pledge to finance building projects amongst a community,” said Michael Norber, a financial portfolio advisor with The Snyder/Balducci Group.
“In return, an investor receives an interest payment either once or twice per year until their original principal investment is repaid. The key component to municipal bonds are that the interest earned is exempt from federal income tax, and if the bond is within the investor’s state, also exempt from state taxes.”
He added, “In a retirement account, where funds grow tax-free, that benefit of tax-exempt income is unnecessary. Also, long-term returns on municipal bonds are traditionally less than taxable bonds because of this exemption and thus do not produce high enough income to justify their place in a retirement portfolio.”
Real Estate
Real estate is another investment Norber recommended selling as a retiree.
“Real estate does not fit into a retiree’s plan because it typically requires a fair amount of maintenance and a large lump sum upfront payment, creating a barrier to entry,” Norber said.
“Additionally, there is an inherent risk that a property’s value could decline over time, and/or underperform even a conservative investment portfolio expected to grow at 4%-6% each year,” he said.
“Finally, it’s certainly not advised to take out a mortgage or any loan to invest your retirement savings in real estate. With interest rates at their current historically high levels, a retiree living on a fixed budget might end up paying over and above their means to finance this transaction,” he concluded.
High-Risk or Volatile Stocks
David Reyes, founder and chief investment officer at Reyes Financial Architecture, suggested ditching high-risk stocks in retirement because it’s too “nerve-wracking… You know those stocks that can shoot up like a rocket one day and crash the next? It’s better to sell them off to protect your nest egg from unnecessary rollercoaster rides.”
Speculative Ventures
Another investment Reyes recommended selling in retirement? Speculative ventures.
“While it’s tempting to chase after the next big thing, remember that in retirement, stability is key,” he said. “Selling off speculative investments means you’re not gambling with your future.”
Private Equity
According to Sam Ellis, a wealth management advisor with Greenleaf Trust, retirees should consider selling private equity.
“Certain investments, such as private equity holdings, may offer attractive returns but lack necessary liquidity. During retirement, having easy access to your funds is essential for covering living expenses and unexpected costs,” he suggested.
He added: “Time horizon is a huge consideration when considering private equity investments. Due to the lack of liquidity and increased risk profile, limiting exposure to private equity investments in retirement can provide greater flexibility and liquidity in one’s retirement portfolio.”
Life Insurance
Ellis also suggested that retirees reconsider their life insurance policies to see if it makes sense to keep them.
“Life insurance is not technically an investment, but it warrants a second look when evaluating one’s holdings during retirement years,” he said.
“Individuals utilize life insurance throughout their working years to provide income protection for their family in the unfortunate event of premature death. In some cases, it can make sense to maintain life insurance policies throughout retirement. However, the ultimate purpose of life insurance should be evaluated to see if it still makes sense to hold,” Ellis added.
Norber also shared his views on the subject: “The most important benefit of a traditional individual retirement account (IRA) lies with its tax deferral treatment of assets. Simply put, the funds in a retirement vehicle grow over time without being taxed unless they are withdrawn prior to age 59½ . However, if the money is moved to a life insurance policy, the individual is penalized 10% and taxed at their ordinary income levels.”
Highly Leveraged Investments
Lastly, Reyes stated that retirees should think about selling highly leveraged investments.
“These are like playing with fire — sure, you might get a big burst of heat, but you could also get burned. Selling off highly leveraged investments protects you from getting singed and helps keep your retirement income steady,” he said.
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