What You Need to Know About Investing After Retirement

How much do you have saved for retirement? The average retirement savings for American households is $65,000, and with the pandemic, this number may be even lower, according to the Motley Fool. This same data shows that 40% of Americans are afraid they won’t be able to retire because of financial setbacks from the pandemic.

Many retirees have relied on investing as a source of retirement income. This number will only continue to grow as investments fund many post-pandemic retirements.

If you’re interested in learning about investing after retirement, then this article is for you. We’ve created the following guide explaining what you should know about investing after retirement to help you determine if you are ready to retire.

Consider the Pandemic’s Effects on Spending

New retirees may have spent most of the past two years in lockdown. Life during the pandemic was good for many savers’ bank accounts, but it’s not a realistic reflection of what spending actually looks like.

If you retired during the pandemic it might be a good idea to take another look at your retirement planning to ensure that you have factored in costs for leisure, tourism, and other activities that were put on hold because of the pandemic.

Be Mindful of Risk

Retirees may have difficulty changing their investment strategy once they hit retirement. After all, decades of investing practice will likely raise confidence in investing.

But one of the key retirement tips to remember is that investing to accumulate wealth is different than investing when you are withdrawing money.

Investing in a market with years to earn a profit allows for more flexibility and growth. Investing with a shorter timeline does not give your portfolio a lot of leeway to recover from the periodic market corrections

Retirees should only invest when they are comfortable with the expected short-term yields.

Be Careful With Inflation

Inflation is another culprit that could damage a retiree’s portfolio. In the past 20 years, inflation has occurred at rates of 1% to 3%. While this may not seem like a high percentage, it will decrease the value of a saved dollar over long periods of time.

Inflation has also gotten worse in the wake of the Covid-19 pandemic: from December 2020 to December 2021, consumer prices for all items increased 7%. This was the largest December to December price change since 1981.

Inflation can cause you to burn through years of hard-earned savings if you don’t take steps to preserve the value of your investments.

Increasing equity positions in portfolios may help to balance out the impact of rising prices. The key is to find a balance between mitigating inflation and the risk you are willing to bear.

Break Your Retirement Into 5-Year Segments

Investing after retirement can be challenging because there is no way to predict your needs 30 years from now or even 10 years from now.
You’ll make the most out of your retirement and be able to plan the most effective when you break your retirement into five-year segments, such as age 70 to 75.

Each segment will have its own needs due to your changing lifestyle. Money invested during the first two or three five-year segments should be invested the most conservatively since you will still have many withdrawals to make.

In later years, investments can take on more risk.

If you are forced to withdraw money from investments that aren’t performing well, this can eat into your capital, capital that you might not be able to replace if you’re retired. Sticking to low-risk investments for the shorter term helps to protect you from this.

It Might Be Time to Rethink 60-40

The traditional strategy of creating a portfolio used the formula of 60% equities and 40% bonds. But bond yields since 2009 have been generally low.

Reducing risk with bonds is starting to become less popular and more and more investors turn to equities.

Investing during retirement now will often look like a higher equity percentage. It may also involve creative strategies like going into cash during declining markets and using approaches that work in both up and down markets.

Have an Estate Plan

Investing money after retirement goes beyond your retirement income. You also have to think about your existing assets—namely, your property.

Retirement is the perfect time to finalize your estate plan and determine that your inheritance is left to the intended people. An estate plan can carry out your wishes in the most tax-efficient manner possible.

You will want to have a will that outlines your wishes, a living trust, and a power of attorney that allows someone to act on your behalf for financial and health decisions should you be unable to make a decision yourself.

Less than 50% of Americans have a will, and that number increases to about 75% for those aged 65 and older. If you are among the 25%, creating a will as soon as possible will be to your benefit.

Steer Clear of Panic Selling

Another crucial thing retirement investors need to be aware of is the danger of panic selling.

Panic selling is the practice of selling investments at a loss due to panic at poor market conditions and plummeting prices. Panic selling causes investors to sell at the bottom, which is the last place you want to cash out investments.

To give a concrete example, think back to the early months of the pandemic. The market was in a free fall, and many people panicked, pulling money from their investments and liquidating stock positions in fear that they’d lose everything if they didn’t get out.

Unfortunately, a fair amount of these investors experienced heavy losses. Once the market bounced back, many had to reinvest at prices far higher than what they sold at.

In situations like this, it can be invaluable to have a seasoned investment advisor at your side who can warn you against panic selling.

The Importance of Investing After Retirement

Investing after retirement can ensure that you have the financial security that you need.

You shouldn’t have to worry about how your investments are performing. Sara-Bay partners with you to manage your portfolio and reach your financial goals.

We would love to hear from you—reach out to us to learn more about how we can work together.

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