Investing is a smart financial move to make regardless of what stage you’re at in life. During your working years, the importance of investing in order to multiply savings for retirement seems like the ultimate goal.
We’re encouraged to open 401(k)s or Roth IRAs and begin contributing to those accounts as soon as possible. But what happens when we get to retirement? Should we still continue to invest?
The short answer is yes. One of the most daunting aspects of retirement is making sure you have enough money to live on until you die. With looming threats of Social Security cuts, longer life expectancy and rising health care costs, making your money go as far as it can is more important now than ever before.
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Understanding market uncertainties is key when it comes to deciding how and where to invest your money. Market uncertainty happens when investors are unable to predict the current or future conditions of the market because it is changing so rapidly. The market becomes volatile when prices in a stock or portfolio fluctuate in a short amount of time.
When this happens, it can be difficult to figure out what to invest in and the potential risks at play, but it’s important to understand how to work with the uncertainty instead of against it.
Goal: Maintain a stable portfolio
Since the market is constantly changing, it’s important to maintain a stable portfolio as you continue to invest. One of the best ways to do this is to diversify your investments. This essentially prevents you from putting all your eggs in one basket. If you’re investing in only one or two securities and they crash, your account value could take a serious hit. Spreading your wealth across multiple securities allows you to manage your risk — potentially minimizing the impacts of a volatile market.
As you’re diversifying your portfolio, be sure to research and review all of your options. This goes beyond investing in various stocks and bonds. One option is to consider using index funds. Depending on your approach, you can use index funds to build your portfolio at a low cost. Investing in ETFs or mutual funds that track the or the Dow saves you from monitoring those indexes yourself.
Depending on your comfort level, you can use index funds to increase your exposure, thus broadening your investments.
Another tip to keep in mind is to think beyond your borders. Don’t be afraid to check out opportunities within the global economy, which is constantly changing. Investing in the global economy can minimize your impact from any negative events happening exclusively in the U.S.
Know your tolerance level for risk
When figuring out what to invest in as a retiree, it’s important to know how much risk you’re willing to take. Every investment carries some sort of risk, but there are different levels. If you’re choosing to take a more conservative approach, there are several low-risk options available.
One option to consider: certificates of deposit, or CDs. A CD is a type of savings account sold by banks that earns interest on a lump sum of money over a fixed period of time. There are various term lengths, ranging from a couple of months to a couple of years.
Be sure to determine your financial goals before buying a CD, because you could be penalized for withdrawing early.
CDs offered by banks are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Those offered at credit unions are insured for the same amount by the National Credit Union Administration (NCUA).
Another low-risk investment option for retirees is Treasury securities, which come in three different types: bills, notes and bonds. Figuring out which one to purchase depends on your financial goals. A bill matures in a year or less, notes can take up to 10 years to mature, and bonds can take 20 to 30 years.
When you purchase one, you’re essentially loaning money to the government. Once the term ends, you’ll get the principal back along with the interest that’s accumulated.
Sticking with the government, investing in agency bonds is another low-risk option. Federal agencies and government-sponsored enterprises issue these bonds in an effort to raise money. Unlike Treasury securities, these bonds have slightly higher yields for the same maturity rate.
Investing while you’re in retirement is a great way to maximize your earnings, but you don’t have to tackle it all on your own. Navigating market volatility, managing risk and safeguarding your accounts are not easy tasks, so don’t be afraid to reach out to a professional. With so many options available, a financial adviser can help you figure out the best investment for your financial situation and future plans.
Related Content
- The Three Basic Components of a Good Estate Plan
- Is Inflation a Big Retirement Worry? How to Protect Savings
- The Five Stages of Retirement (and How to Skip Three of Them)
- Six Financial Actions to Take the Year Before Retirement
- Five Things I Wish I’d Known Before I Retired
Disclaimer
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
FAQs
Investing while you're in retirement is a great way to maximize your earnings, but you don't have to tackle it all on your own. Navigating market volatility, managing risk and safeguarding your accounts are not easy tasks, so don't be afraid to reach out to a professional.
Should retirees continue to invest? ›
In the long term, stocks have outpaced inflation. As part of a diversified portfolio, retirees can also consider investing some of their fixed income in TIPS (Treasury Inflation-Protected Securities), which hedge against inflation risk.
Should a 70 year old be in the stock market? ›
Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.
What is the biggest financial mistakes that retirees make? ›
- 3) Applying for Social Security Too Early.
- 4) Spending Too Much Money Too Soon.
- 5) Failure To Be Aware Of Frauds and Scams.
- 6) Cashing Out Pension Too Soon.
- 7) Paying more Taxes than necessary.
- 8) Supporting Adult Working Children.
- 9) Being House-Rich, but Cash-Poor.
- 10) Not Staying Active Socially and Physically.
Know how your savings or pension plan is invested. Learn about your plan's investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return.
Should retirees pull out of the stock market? ›
If the market drops, you won't have to sell stocks at a loss to cover your living expenses. “Stocks have a market risk, but for long-term investors, you do want to make sure that you stay invested in stocks,” Cheng said. "And by the way, everyone, even someone who is retired today, is a long-term investor."
Where is the best place for retirees to put their money? ›
Bank Savings Accounts
If you put your money in a bank account, you can be very confident that you'll be able to access it again in the future. And, deposits in savings accounts from most banks are FDIC insured. That means that even if your bank becomes insolvent, the federal government covers your savings.
How much money should you have in the stock market if you're 75? ›
For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.
At what age should you take your money out of the stock market? ›
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
How much should a retired person have in stocks? ›
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
Not purchasing more lifetime income
The survey found 26% of respondents regretted not purchasing more lifetime income through a retirement annuity. This number included those who had not bought annuities, and those who had but wished they had paid more in premiums to increase their lifetime payments.
What should you not do with your retirement money? ›
Cashing out Savings
If you cash out all or part of your retirement fund before age 59½, your plan sponsor will withhold 20% for penalties and taxes so that you won't receive the full amount. You will lose future earnings since most people never catch back up.
Do most retirees run out of money? ›
The average retiree doesn't have anywhere close to $1 million saved. Most retirees have just $142,500 in savings, according to Clever's study. Almost half (46%) of retirees are unprepared for the possibility of running out of retirement savings.
What is a good monthly retirement income? ›
Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
At what age do most people retire? ›
While the average retirement age for workers in the United States is 64, that number varies as a result of many factors, including your Social Security benefit, your retirement savings, any pensions you might have, and even the lifestyle you want to live in retirement.
What should retirees do now in the stock market? ›
Dividend Stocks
For low-risk investments suitable for retirees and older investors, Rawitch recommends high-dividend blue-chip stocks. "These stocks offer stability and regular income," he says. "By conducting thorough research, it's also possible to find undervalued stocks with above-average dividends.
Should retirees invest in stocks or bonds? ›
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
How much does the average retiree have in investments? ›
Average retirement savings balance by age
| Age group | Average retirement savings balance amount |
|---|
| 45-54 | $313,220. |
| 55-64 | $537,560. |
| 65-74 | $609,230. |
| 75 and older | $462,4100. |
2 more rowsMay 7, 2024
If you retire without any savings, you may have to live on Social Security alone. You might struggle to pay your bills in that situation.
