6 Strategic Moves to Keep Growing Your Wealth After You Retire
Who says wealth-building stops at 65? From adjusting your risk to beating the sequence of returns, here is how to maximize your money without a paycheck.
Just because you're retired doesn’t mean you can’t build wealth. There are plenty of ways to make your money grow, even if you aren’t collecting a paycheck anymore.
People want to continue earning money in retirement for numerous reasons. For some, it's all about legacy — they want to leave as much as possible to their heirs. For others, it's the lifestyle creep; they want to keep up with the Joneses and then some. Moreover, it's simply what they do. They’ve been building wealth all of their adult lives, so why stop now?
Whatever your reason, the good news is that there are several ways to keep your money growing. Here are six strategies to consider.
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1. Build wealth by being less conservative
An easy way to build wealth is to adopt a less conservative investment style. Sure, you’ve been told to dial back the risk the closer you are to retirement, but being too conservative when retirement can last two or three decades can hurt you. To build wealth, you need a portfolio that continues to grow.
"People in retirement become more risk-averse and more concerned about the market," says Michael Berkhahn, vice president at Graham Capital Wealth Management. "But if they want to continue to build wealth, they have to change this narrative."
That means having a financial plan that can weather market downturns and is also invested for long-term growth. Berkhahn recommends the bucket approach in which your retirement savings are spread out to accommodate your short-, medium- and long-term goals.
2. Avoid selling stocks when the markets are down
The sequence of returns risk occurs when you experience negative investment returns early in retirement and are forced to take withdrawals. That can significantly impact the lifespan of your retirement savings, as it leaves less money to recover when stocks rebound. In the first five to ten years of retirement, the sequence of returns risk is the most prominent one you'll face, and could lead to a shortfall later on.
The problem is made worse when distributions are automatic. To avoid sequence-of-returns risk, ensure that distributions aren’t coming from any accounts optimized for growth, says Dave Alison, president and founding partner of Prosperity Capital Advisors.
3. Get risky if you can
If you have a well-diversified portfolio, another way to potentially build wealth is to increase your exposure to alternative assets such as private equity, real estate or cryptocurrencies. Not only is there the possibility of gains, but it also gives you diversification. That can cushion the blow if stocks are tanking.
"Hopefully, if the market is down 20% maybe real estate isn’t underperforming,” says Berkhahn.
Remember that private equity and cryptocurrency investments carry significant risk. Consider consulting with a financial adviser before investing.
4. Turn a hobby into a job
You may be retired, but that doesn’t mean you can’t turn an expertise, passion or hobby into a job. The money you earn from consulting, working part-time or doing a side hustle can be invested. Since you don’t need the money, you’ll be freer to choose a job you truly love and enjoy.
"There are so many ways people who aren’t working full time can generate cash flow from their passions," says Alison. Alison points to real estate as another way to generate income and build wealth. He has clients who buy real estate to either flip or rent out. You get cash flow and tax benefits and don’t have to deal with the 9-to-5 grind, says Alison.
5. Don’t overpay in taxes
When it comes to expenses in retirement, taxes can be a significant portion, especially when Required Minimum Distributions (RMDs) kick in. Even before that, if you aren’t careful, your distributions can push you into a higher income bracket.
Retirees typically have three funnels from which to withdraw money: Pretax 401(k)s and IRAs, Post-Tax Brokerage accounts and Tax-Advantaged Roth IRAs. If they withdraw money from the wrong account at the wrong time, it could result in a larger tax bill. That’s money that could have gone to build wealth.
“There’s a huge ability to protect the money accumulated through a tax-efficient withdrawal strategy,” says Alison.
6. Downsize your home and invest your gains
If you're sitting on a gold mine and have been itching to move to a more affordable location, one way to build wealth in retirement is to sell your home, buy something more affordable, and invest the difference.
You can save on the cost of living and potentially on taxes if you move to a state that doesn't tax your income or retirement savings, such as these states. Plus, you can put the profit directly into growth-oriented investments to build more wealth.
Before you employ this strategy, make sure to do your homework. There are many tales of retirees who relocated in retirement only to regret it, like this couple who are stuck in a condo in Boca Raton, Florida.
It's not over once you retire
Retirement doesn’t mean the money has to stop flowing. Whether you fine-tune your asset allocation, take on some more risk, or embrace a new project or job, there are numerous ways to build wealth once you retire.
Simply being mindful of withdrawal timing and tax impacts can generate extra cash to build a bigger nest egg.
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