Should Retirees Continue to Invest? Yes, and Here’s How

You might have switched to the spending phase of your retirement plan, but that doesn’t mean you shouldn’t invest any longer, or plan for market volatility.

An older woman looks into the distance, clearly thinking.
(Image credit: Getty Images)

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 S&P 500 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.

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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.

Jason “JB” Beckett
Founder, Beckett Financial Group

JB Beckett has been an adviser for 24 years and is the founder of Beckett Financial Group, a specialized financial firm that helps individuals and businesses in the Retirement Red Zone build Tax-smart Retirement Income Blueprints allowing them the freedom to overcome their concerns about inflation, market volatility and taxes to retire sooner.