investing

Shore Up Your Financial House to Keep the Wolf Away

Retirees and those near retirement need to make sure their portfolio is built with solid bricks that can withstand the winds of risk. Here are six investment possibilities to consider, plus their pros and cons.

Bricks, sticks or hay?

Every kid knows that to build a home that holds up, you’ve got to go with bricks. If only it were that easy when building your “financial house” in the real world.

Unfortunately, if you want to reinforce your retirement portfolio so it holds up to all the huffing and puffing of our global economy, you can’t go with just one strategy — you have to mix it up. Keeping your portfolio divided among several different investment vehicles can help reduce your overall risk while still potentially generating the returns you’ll need to last a lifetime.

Here are some strategies to consider:

  • Stay safe with fixed interest. This is one of the most basic ways of creating retirement income: You invest in interest-bearing vehicles (certificates of deposit, bonds, etc.), and what you earn is what you have available to spend. The downside is that your holdings don’t benefit when interest rates increase.
  • Look at buying an immediate annuity. With an immediate annuity, you hand over a lump sum to an insurance company in exchange for guaranteed monthly payments for the rest of your life. Beware: The costs and fees of some annuities can be high; you’ll lose access to the principal; and if you die prematurely, it’s likely the insurance company will keep your money — it won’t go to your heirs. But you’ll get a predictable monthly income for a period of time — 10 or 20 years, or until you die.
  • Research variable annuities. There are pros and cons to every investment, but variable annuities are especially complicated. Variable contracts are unique in that they offer a preselected group of mutual fund subaccounts into which you allocate your premiums. The values of the funds rise and fall with the markets, so there is the potential for superior returns, and a variable annuity with a living-benefit rider can provide an income stream for life. But there’s no principal protection, and the fees and costs are typically high.
  • Don’t overlook stock dividends. Dividends are payments made to stockholders on top of what they would get from selling shares of stock. Companies that pay dividends usually do so with a portion of their profits — and they can adjust the yield or stop paying dividends as they see fit, so do your homework and choose companies with a solid reputation for consistently paying over time.
  • Branch out with a real estate investment trust. A REIT is a company that owns and usually operates income-producing real estate, such as office parks, warehouses, shopping centers or apartment buildings. Of course, there’s some risk here if the business doesn’t make it. (Focus on those that are necessity-based, such as a chain of grocery stores or health care centers.) But the upside is that you’ll get diversification, as well as a dividend payment without having to do the hands-on dirty work of a property owner or a landlord.
  • Pay attention to the possibilities of a fixed-index annuity with an income rider. There’s a reason this “hybrid” annuity gets so much hype. It takes the good parts of other annuities but has fewer downsides. The fixed-index annuity combines tax deferral and the potential for interest based on positive changes of an external index without actual participation in the market. Some options put caps on how much your returns can be, but others place no caps on yearly growth. Unlike an immediate annuity, you still control your contract, and any funds left when you die can be passed on to your loved ones as a legacy. But read all the paperwork. Just as with other annuities, the fees can be high and the rules complex.

There’s an old saying on Wall Street that’s often ignored: “Bulls make money, bears make money, but pigs get slaughtered.” It’s tempting to stick with stocks while the market is doing so well, but the risk is just too high for someone near or at retirement. A diversified portfolio will help you keep the wolf away from your door.

Investment advisory services offered through AE Wealth Management LLC (AEWM). AEWM and Max Wealth Group are not affiliated entities. Investing involves risk including the potential loss of principal. Any references to protection benefits, lifetime income and safety generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. AW11175236

Kim Franke-Folstad contributed to this article.

About the Author

Max Hechtman, Investment Adviser Representative

Partner and President, Max Wealth and Insurance Solutions

Max Hechtman is an Investment Adviser Representative and insurance professional. He is partner and president of California-based Max Wealth & Insurance Solutions (CA License # 0H29034). His goal is to help his clients work toward a safe and conservative retirement using a variety financial vehicles. Hechtman has been advising clients for 14 years.

Most Popular

How a Third Stimulus Check Could Differ From Your First and Second Payments
Coronavirus and Your Money

How a Third Stimulus Check Could Differ From Your First and Second Payments

There's going to be a big push for a third round of stimulus payments. But the amount and eligibility rules for your third stimulus check could be dif…
January 12, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS updated its popular online tool so that you can track the status of your second stimulus check.
January 9, 2021
When Could We Get a Third Stimulus Check?
Coronavirus and Your Money

When Could We Get a Third Stimulus Check?

It's clear that President-elect Joe Biden and others in Congress are going to push for a third-round of stimulus checks, but it might be a while befor…
January 11, 2021

Recommended

Fund Your IRA, Cut Your Taxes
Tax Breaks

Fund Your IRA, Cut Your Taxes

There’s still time to make a 2020 IRA contribution and lower your tax bill.
January 13, 2021
10 Least Tax-Friendly States for Retirees
retirement

10 Least Tax-Friendly States for Retirees

When it comes to state and local taxes, retirees in these states are likely to pay more than retirees in other states.
January 12, 2021
How to Spot (and Squash) Nasty Fees That Hide in Your Investments
retirement planning

How to Spot (and Squash) Nasty Fees That Hide in Your Investments

Your annual investment statement might look hot this year, but it’s probably missing one very important figure: the fees you paid.
January 8, 2021
A Retiree’s Guide to Key Dates in 2021
Basics

A Retiree’s Guide to Key Dates in 2021

It's critical -- and financially sound -- to hit these important financial deadlines spaced throughout the year.
January 8, 2021