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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Related Content
- The Three Basic Components of a Good Estate Plan
- Is Inflation a Big Retirement Worry? How to Protect Savings
- The Five Stages of Retirement (and How to Skip Three of Them)
- Six Financial Actions to Take the Year Before Retirement
- Five Things I Wish I’d Known Before I Retired
-
Cord Cutting Could Help You Save Over $10,000 in 10 YearsHow cutting the cord can save you money and how those savings can grow over time.
-
The '8-Year Rule of Social Security' — A Retirement RuleThe '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
You Were Planning to Retire This Year: Should You Go Ahead?If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get ItThe Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning PlaybookConsider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
Your Home + Your IRA = Your Long-Term Care SolutionIf you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a RecessionRecessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income PlanningOnce you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
-
Why Smart Retirees Are Ditching Traditional Financial PlansFinancial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
To My Small Business: Well, I've Been Afraid of Changin', 'Cause I've Built My Life Around YouWhile thinking about succession planning might feel like anticipating a landslide (here's to you, Fleetwood Mac), there are strategies you can implement to manage the uncertainty and the transition.
