Erik Logo

Ten Rules for Investing After Retirement

  1. Have a Plan. 

The most important principle of investment after retirement is to have a plan. Intentionality and strategic thinking wins the day. A wise approach includes some of the following elements: (1) start early, (2) make a plan, (3) review your plan every year, (4) expect setbacks, (5) invest monthly, (6) reinvest half of your raises, and (7) live beneath your means.

2. Embrace A Wise Philosophy of Investments

The best laid plans will fail without investment wisdom. Wise investors: (1) think in terms of a diversified portfolio,  (2) expect setbacks, (3) use investor fear to their advantage, and (4) understand that the path to success is time in the market, not market timing.  Also important is that you receive sound investment advice from a qualified money manager. 

3.  Asset Selection and Allocation

Many retirees prefer less excitement and more stability. These investors should look to fixed income, more real estate, more utilities and less to ultimate growth stocks. A diversified portfolio of SOP 500 indices, bond funds and real estate funds tend toward stability. Also, get a sharp financial adviser to manage your portfolio. 

4. Mitigating Sequence of Return Risk

The goal here is to optimally time withdrawals during retirement without negatively impacting your investment portfolio moving forward.  Popular strategies include income laddering from non-market sources, accessing home equity to provide needed cash flow during a down turn, and limiting your withdrawal rate. 

5. Safe Withdrawal Rates

Retirees hope to maintain a sufficient estate over the course of their retirement years to meet their needs. Protect your estate against shrinkage by minimizing your rate of withdrawal. Take out just enough, and no more, to meet your needs, anticipate inflation, and continue to earn six to seven percent. A good benchmark is not to exceed a withdrawal rate of three to four percent. 

6. Tax Efficiency

The goal of tax efficiency is to avoid paying higher taxes during retirement.  If you are in a retirement account, you don’t pay taxes until you withdraw money. So the efficiency is on the growing of the assets. If you are a non-retirement account, you do pay taxes if you have a gain. With markets down it’s a good time to do some tax planning, take losses, and maybe take them against gain. This way you can make your distribution more efficient and minimize your tax burden.

7. Embracing Intentional Legacy Planning

Think in terms of legacy and generational impact. The more intentional you are, the more likely you will leave a positive legacy.  Remember that you could spend a lifetime making money in order to leave a financial legacy, only to have it squandered in a heartbeat. Children are not taught the skills or philosophy of handling money in school. That must come from you.  Devote time and energy to preparing your progeny for inheritance and money stewardship through family meetings, financial books and other forms of training and sound advice. 

8. Anticipating End of Life and Insurance Contingencies

Anticipate significant expenses related to illness during the last year of your life. Obtaining medical insurance, a long-term care policy or end-of-life policy is important. Policies can be acquired far cheaper if purchased in your 40’s and 50’s.  Look into life Insurance policies that allow exchanging death benefits for long-term care.

9. Annuities

Annuities provide significant advantages for retirees and can be a wonderful financial planning tool. They are tax deferred, and can be inside or outside a retirement account.  There are a diversity of approaches to annuities, so get counsel from your financial advisor. In our present market climate where interest rates are up, fixed annuities are a bit more attractive because fixed income pays more and offers more opportunity.

10. Property

Real estate is an excellent asset protection in inflationary times because it tends to follow inflation. In the case of rental property, rents increase dramatically in inflationary times, thus giving the owner an income boost. Alternatively,  you could own real estate through publicly traded entities called Real Estate Investment Trusts.  Here, professionals manage the real estate and make distributions to you. There are tax benefits to this approach. Real estate investment trusts also simplifies life for owners by removing the burden of management from the investor. 

Leave a Reply

Your email address will not be published. Required fields are marked *

Erik Weir