3 Things You Need to Know About Investing After Retirement
Retirement is a significant life milestone that brings about a shift in financial priorities. While you may be done with the 9-5 grind, your finances still require careful attention, especially when it comes to investing. Whether you're already retired or approaching retirement, here are three essential things you need to know about investing after retirement.
1. Shift Your Investment Focus
After retirement, your investment mindset should remain long-term, after all you’ll want your portfolio to provide for your living expenses for the next 10-30 years. However, you will be drawing from your portfolio throughout retirement, so you will need to focus on capital preservation and generating retirement income, too.
This shift in focus often means reducing exposure to high-risk assets and increasing allocation to more stable investments. A good financial planner can help you confirm your risk tolerance and make sure it aligns with your asset allocation for the distribution phase of your life.
Asset Allocation
Consider rebalancing your portfolio to include a higher proportion of defensive assets like bonds and cash equivalents. These assets can provide a steady stream of income while offering a level of protection against market volatility.
Risk Management
While it's important to keep growing your wealth in retirement, it's equally crucial to protect against major downturns. With the help of your advisor, reassess your risk tolerance and consider if a more conservative investment option better aligns with the phase of life you are in.
2. Plan for Ongoing Income Needs
During retirement, having a reliable income stream is an important part of meeting your needs. This requires careful planning and a well-diversified investment approach to ensure your assets generate sustainable income throughout your retirement years.
Sustainable Withdrawal Rates
Establish a prudent withdrawal rate from your investment accounts to cover living expenses without depleting your savings too quickly. A financial planner can help you determine a sustainable withdrawal rate based on your portfolio and anticipated longevity.
Pension and Annuities
These vehicles famously offer guaranteed income, providing a layer of security in your overall financial strategy. But they’re not for everyone. If your company pension and Social Security income cover all of your basic monthly needs, you may not need one.
If you don’t have a company pension available, sometimes it makes sense to allocate a small portion of your portfolio to an income annuity to help bridge your monthly expense needs. A financial advisor can help you determine how much monthly income is needed and if an annuity makes sense for you.
3. Factor in Longevity and Healthcare Costs
With longer life expectancies, it's crucial to plan for potential healthcare expenses and the impact of inflation on your retirement investments.
Longevity Risk
Be mindful of the possibility of outliving your savings. Explore long-term care insurance and other strategies to mitigate the financial risks associated with an extended retirement.
Inflation Protection
Invest a portion of your portfolio in growth assets that have the potential to outpace inflation, such as owning stock ETFs and mutual funds. Accounting for the impact of inflation can help ensure that your purchasing power remains intact over the years.
Like so many things during big life changes, investing after retirement requires a shift in mindset from accumulation to distribution. By adjusting your investment focus, planning for ongoing income needs, and considering the impacts of longevity and healthcare costs, you can build a resilient investment strategy tailored to support your retirement lifestyle.
We can provide valuable guidance as you navigate the complexities of post-retirement investing. Remember, retirement is a new phase of life, and your investment approach should evolve to meet your changing financial needs and goals.