How to Invest in Retirement

Whether you’ve been a savvy investor your whole career, or you’ve decided now’s the time to buckle down on obtaining additional income, investing in retirement can be a challenging endeavor. As you strategize and weigh your options, there are a few key factors to keep in mind that can help guide you toward the right solutions for your particular needs. We’ve outlined these considerations below, as well as the types of investments that may work for you throughout retirement.

Investment Considerations For Retirement

Creating a steady source of income throughout retirement is typically done through lower-risk investments. There are numerous factors that can affect which types of investments may work best for you including your timeline, risk tolerance and personal goals. As you seek out the right investment options for you, be sure to keep the following factors in mind.

Balance Your Income and Expenses

At its core, retirement is a balancing act. You need to obtain income to cover expenses. And without a paycheck or proper plan in place, this can get tricky. There are two popular investment approaches most retirees use to obtain income throughout retirement: the bucket strategy and systematic withdrawal approach. The bucket strategy essentially divides up your retirement into stages. Your savings and assets are distributed at different intervals throughout retirement, such as at five or 10 year periods depending on your income gap and immediate needs. Alternatively, the systematic withdrawal approach uses a wide range of assets and a diversified portfolio to offer income distributed at even increments throughout retirement.

Know Your Income Style

Choosing a retirement income style is just as important as selecting an income strategy. Your income style indicates the level of risk in your income sources. There are two popular styles: safety-first and probability. The safety-first style relies on secure income sources like social security, pensions, annuities, and reverse mortgages, that have little to no risk, to meet essential spending needs.  In contrast, the probability income style depends on more risky income sources such as investments to satisfy retirement spending needs. Neither style is better than other. Both have pros and cons.  What style works best for you depends on your comfort level with how much risk you are willing (or not) to tolerate in your retirement income sources. Knowing your income style can be the difference between having peace of mind or constantly worrying over factors out of your control.

Extended Life Expectancies

As you focus on developing alternative sources of income, it’s important to remember that you could be living in retirement for longer than anticipated. In fact, just between 2000 and 2016, the average life expectancy increased by 5.5 years.¹ Today’s retirees can expect to enjoy retirement for anywhere from 15 to 30 years, longer than previous generations. In terms of investments, this presents a need to consider long-term investment options that can provide income during your later years.

Prepare For the Unexpected

The longer your life, the greater the chance there is that you’ll experience unexpected expenses. This can include anything from loss of income due to the death of a spouse or the need to pay for a grandchild’s college tuition. It’s important to stay flexible in your investment options and retirement strategy, as you never know what expenses may lie ahead.

Types of Investments

Once you’ve taken into consideration the factors that can affect your income throughout retirement, you should weigh your actual investment options. Below are a few of the most common types of investments you may want to consider using throughout retirement.

Bonds

While bonds may have been an unappealing option in your younger years due to their relatively low rate of return, they can offer reliable income that works well for many throughout retirement. If you’re looking to create steady payouts, consider investing in a variety of bonds with different maturity rates, as these will create smaller payouts over time instead of leaving you with one lump sum.

Certificates of Deposit

With certificates of deposits, or CDs, the longer you leave them alone, the greater the payout you’ll receive. Typically done through a bank or credit union, think of CDs as savings accounts that you can’t access for a certain period of time. You choose a predetermined length (anywhere from a couple months to many years) and are given an interest rate. Generally speaking, the longer you wait, the higher the interest will be. Once the time period has passed, you get your money back along with the interest it has collected. This can be a beneficial alternative to leaving your excess money in a savings account, because it helps you save for later in life.

Stocks

Typically, the older you get the more conservative you’ll want your investments to be. But that doesn’t mean you should count out stocks completely. Depending on your age, risk tolerance and other aspects of your retirement strategies, stocks that offer slow, steady growth can have the potential to increase your earnings at a greater rate than other types of low-risk investments. One approach is to consider searching for those that offer dividends, as these can potentially create regular payouts throughout retirement.

The truth is, a majority of households in America simply aren’t saving enough to last throughout retirement. In fact, two-thirds of households with at least one working member between the ages of 55 and 64 has a retirement savings of less than one year of their annual income.² With longer life expectancies and unexpected expenses, that simply won’t last. That’s why it’s more important than ever to focus on how you can make your money work for you throughout retirement.

1. https://www.who.int/gho/mortality_burden_disease/life_tables/situation_trends_text/en/
2. https://www.nirsonline.org/wp-content/uploads/2017/06/retirementsavingscrisis_final.pdf

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.