A Retiree’s Guide for Investing Through the Golden Years

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A combination of factors make investment management all the more important in your retirement years. Today’s retirees can’t just sit back and live comfortably off of their income.

Active management is a must. Inflation can eat away at portfolio income. Low interest rates in the 2010s may bring low yields to bonds and other instruments. And with the average lifespan increasing, investments need to maintain income levels for longer periods of time at higher rates; something traditional bond and hedge fund investments cannot accomplish.

However, investing in retirement is not the same as investing while you still have a job. Social Security, IRA withdrawals, and planning for inheritance can complicate matters. Portfolios need widespread adjustment after retirement to yield proper benefits. The best strategy you have begins with self-education. Too many seniors use intuition instead of fact, or refuse to listen to advice when it comes to investment. You cannot make these mistakes and expect an ideal lifestyle.

Begin your active involvement by creating detailed plans for your retirement life. How much income will you want a month? Are you going to make any large purchases, like a boat or vacation home? When are you going to make these purchases? By creating an income sheet that shows all your sources of retirement income and payment schedules, you will be prepared to make key investment decisions.

Common Concerns and Ideal Investments

Nest Eggs: Many people, upon retirement, start worrying that their primary sources of revenue will not last their entire life. The solution is careful financial planning that includes a diverse portfolio. Guaranteed investments will only take you so far. Some risk is needed to ensure income stability. You may also want to consider Medicare, Long Term Care Insurance, and other policies in later years.

Budgeting: A withdrawal strategy is key for most retirement plans. Balance your IRAs and income by withdrawing wisely to avoid high taxes. Hire an advisor to create this plan and expect to only withdraw about 4 percent of your investment portfolio each year…if you plan on ending investments by the time you die. If you are worried about having enough money to reach your goals, explore options designed with your problem in mind, such as Income Replacement Funds.

Tax Burdens: Some seniors worry that the benefits they reap from retirement accounts will come with heavy tax burdens. While traditional IRAs are taxed according to IRS withdrawal schedules, Roth IRAs are not taxed when you start withdrawing. If your income levels are high, you may also be taxed for Social Security. This is where many seniors make mistakes. Before Social Security, tax-free interest gained through municipal bonds was a sound investment strategy. But after retirement, that extra interest will only bump up SS taxes. Keeping money in an annuity is a better idea. If you are relocating, choose a state that does not add an additional Social Security tax if possible.

Inflation Issues: Inflation continually decreases the value of the money you receive from long-term investments, which means your return on a steady investment will decrease throughout retirement. Several facts can help you reduce the effects. First, stock investments grow faster than inflation in the long term. Second, various stock mutual funds are designed to be inflation-proof, making them worth your while. Third, short-term volatility will always be with us, so consider what returns you want and when you want them before making decisions.

Building for the Next Generation: If you want to pass down your investments to your children, consider using trusts and other forms of estate planning to ensure that estate taxes do not hamper the transfer. You may also want to rethink your portfolio mix. Every retirement situation is a little different, and requires different types of investment. If you are planning on passing down investments, short-term volatility in instruments may not be as harmful to your portfolio plans. Traditional advice calls for 10 to 20 percent investment in shares for retirees, but a larger portion may be ideal if you want to pass down a collection of stocks. Likewise, illiquid assets like land or hedge funds could remain useful…as long as you will not need to turn them into income yourself.

Pitfalls and Scams: Yes, senior citizens are the most frequently targeted group when it comes to scams and fraud. But you can dodge most scams through careful research and knowledge about the investment world. Do not trust other people when it comes to your finances. Scam artists go to great lengths to appear like genuine financial advisors, and only by examining what they offer can you decide whether it is a good deal or not. Follow three simple rules. Always check the background of companies, always keep younger family members aware of your investment decisions, and never trust a deal that looks too good to be true.

Further Information

There are many reputable online sources you can use to make financial decisions, vet potential financial investors, or simply learn more about modern investments. Here are several to help get you started:

Morning Star: Invest For/In Your Retirement

CNN Money: Ultimate Guide to Retirement

Investopedia: Retire from Work, But Not Personal Financial Planning

Qwoter: Investing After Retirement