You worked hard your entire life and are finally ready to sit back, relax and live off your retirement savings. But before you go looking for the perfect beach chair, it might be worth reviewing your investment strategy.
Why? Because investing after retirement has important differences from investing when you were working. These strategies could help keep your golden years ... well, "golden."
Investing After Retirement: The Whys & Hows
Once you retire, it could be a good idea to be more conservative with your savings. But what does this actually mean? One strategy is to keep more of your savings in places that don't have the potential to lose money (like banks) and invest less in assets that can lose value (like stocks). After all, if the market were to go down after you retire, you likely wouldn't have as much time to recover — and you wouldn't be earning a paycheck to replace your lost savings.
But that doesn't necessarily mean you have to stop investing altogether. Retirements are getting longer and longer, and it's not unreasonable to think your savings may need to last 30 years or more. And while safe assets like cash and bank certificates of deposit (CDs) don't lose money, they don't usually earn much interest either. You may still want high-growth potential to build up enough for the future.
Investing after retirement could also help you keep up with inflation. Stocks and mutual funds offer a chance for greater reward consistent with greater exposure to volatility risk and potential loss, helping your savings keep up with rising prices. But if you only hold money in the bank, where it might not grow as quickly, inflation could chip away at your spending power. Investing could also help grow your disposable income, giving you more money for fun goals like taking vacations, giving money to charity or leaving an inheritance for your family.
The Balancing Act
A balanced retirement portfolio might include a mix of safe assets that don't lose money, as well as high-earning but riskier assets. Safe assets are things like bank CDs, bonds, money market accounts and annuities. Riskier, long-term assets could include stocks, mutual funds and perhaps real estate.
You could decide to use the safe assets for day-to-day expenses, like your rent or mortgage, groceries, utilities and insurance. The long-term investments could help grow your portfolio for the future — while also providing extra spending money for today if you happen to see positive returns on your investments. Of course, the right balance depends on your personal situation, risk tolerance and goals.
Timing Is Everything
To help increase the chances your savings will last, you might consider timing any withdrawals with the performance of your investments. When your investments do well, that could be the ideal time to take out extra to go on vacation, renovate your house or make a donation to charity.
During market downturns, on the other hand, consider cutting back on nonessential spending. This way you could avoid selling assets when they're at a low price. You could get more out of your withdrawals by cashing out when the market is up.
A Word of Advice
As you head into retirement, think about discussing your investment strategy with a financial representative or conducting a financial analysis. They could run simulations on how much you would have in retirement, the right balance for your portfolio and how you could adjust your spending when the market is good or bad. They could also help you pick the right investments for your goals and risk tolerance.
By putting this work in now, you can relax knowing your portfolio is in better shape. Then you can worry about more important things, like planning your granddaughter's birthday and finding that perfect beach chair — it's a tough job, but someone has to do it!
All investing involves risk, including the possibility of a loss of the money invested.