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. Here are some things to consider and some investments that may work for you throughout your retirement.
Investment Considerations for Retirement
Creating a steady income source throughout retirement is typically done through lower-risk investments. Numerous factors 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 the 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 five- or ten-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.
Extended Life Expectancies
As you focus on developing alternative income sources, it’s important to remember that you could be living in retirement for longer than anticipated. In fact, between 2000 and 2016, the average life expectancy increased by 5.5 years. 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 face unexpected expenses. This can include anything from loss of income due to a spouse's death 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 considered 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 throughout retirement.
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 various bonds with different maturity rates, as these will generate 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. You choose a predetermined length (anywhere from a couple of months to many years) and are given an interest rate. Generally speaking, the longer you wait, the higher the interest will be. Once the allotted time has passed, you get your money back along with the interest it has collected. This can be beneficial because it helps you save for later in life.
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 that most 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 have a retirement savings of less than one year of their annual income.
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.
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