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Young or old, most financially savvy people are thinking about strategies to invest better for their retirement. But investing does not stop when you retire. In fact, the changing investment landscape requires retirees to invest differently and change the composition of assets to enjoy higher returns or steady returns. This article looks at the benefits of investing after retirement and what assets should be on your radar.
Can Retirees Invest?
Retirement could present cash flow management issues. Fortunately, you can choose investments in retirement without exposing your whole life savings to the whims of the stock market. You could invest some of your income to ensure you make regular returns or increase the value of your portfolio over the long run.
The Benefits of Investing After Retirement
Investing after retirement can generate returns that could allow you to live a better life, travel or buy the house you have always been dreaming of. So why consider investing even after you retire? It will give you the financial freedom to undertake a new project or contribute to something you care about. This article provides a few reasons why you should consider it.
You can grow your retirement income: When you retire, your pension or Social Security check may not be enough. It can be a good idea to invest and potentially increase your retirement income. In fact, 70% of people plan to keep investing after they retire according to a 2018 study. It showed that respondents used 13.3% of their retirement savings to continue investing.
You can help the kids or grandkids: It can be expensive for new parents to plan for a house and for their child's future. As a retiree, you can invest in your grandkids’ or family’s education by contributing to their education funds or paying directly for private school.
Maybe you start a business: It’s good to follow your passion, and your twilight years may be the best time to start a business.
Buying your dream house: It may be a good time to buy that house by the ocean. You may have been dreaming of downsizing now that the kids are in college. You might prefer to buy another home to rent out and try to generate extra income on a monthly basis. Income from rent can increase during inflationary periods.
You can prepare your assets for external risks: You can reduce your exposure to risky assets or invest in assets that are less likely to be impacted by inflation. At present, U.S. inflation rose by 5.4% in September 2021, which can reduce your spending power because your money buys less. By investing in inflation-resistant assets such as real estate, you could enjoy steady returns regardless of inflation. Interest rates across the U.S. and Europe are low, which impacts the interest you earn on your savings. You may be able to obtain higher returns if you invest in stocks, commodities and bonds.
The Best Investments for Retirees
Retirees can invest in a range of assets, but you should balance cash flow, risk and return when choosing your investments.
U.S. Treasury Bonds
Treasury bonds pay a fixed rate of interest every 6 months until they mature. They are issued over a 20- or 30-year period. You can buy Treasury bonds in TreasuryDirect or a brokerage. You can also add them directly to your IRA or 401(k) account to boost your earnings. U.S. Treasuries are considered the safest asset in the world.
U.S. Treasury Inflation-Protected Securities
Much like Treasury bonds, Treasury Inflation-Protected Securities (TIPS) are a government-sponsored security used to finance debt. They differ from Treasury bonds as they pay both interest and additional principal to compensate for the current rate of economic inflation. This low rate of risk unfortunately also means that TIPS generally have much lower interest rates when compared with other securities and stock options.
Many types of mutual funds exist, but some can be more appropriate for retirees looking to diversify their assets and generate returns by a specified date. If you have a few years until retirement, target retirement funds will protect your savings and allow you to retire on time. Do you still have a few years till you can retire? Target retirement funds can also be good for younger investors since they are regularly rebalanced and grow more conservative as you move closer to retirement.
Municipal bonds are debt securities issued by local and state governments that are used to fund various everyday projects, such as building roads, funding schools and maintaining water treatment facilities. Investors can choose from 2 types of municipal bonds: general obligation bonds (which are not secured by an asset but by the “full faith and credit” of the issuing body) and revenue bonds (which are backed by the revenues stemming from a specific project, like highway tolls).
Municipalities may also occasionally issue bonds backed by private venues, including non-public universities and hospitals. Municipal bonds may be short term in length, lasting only a few years, or they may take a decade to reach maturity. Municipal bonds can be a good investment for retirees because the interest earned on these bonds is not taxed. Municipal bonds have interest rates that are roughly 0.2% higher than longer-term Treasury bonds.
While the majority of a retirees portfolio should be in low-risk assets, it's still a good idea to have some exposure to digital assets. The industry is quickly growing, and it's established itself as a legitimate investment vehicle in financial markets. Many financial gurus, including Mark Cuban, recommend investors to have between 1% to 10% of their portfolio exposed to cryptocurrencies in some capacity. Altcoins are likely too risky for most retirees, but Bitcoin and Ethereum are relatively safe investments relative to the rest of the market.
You can either directly invest in digital assets with platforms like Coinbase, or you may opt to buy cryptocurrency related stocks. Proshares Bitcoin ETF (NASDAQ:BITO) is the 1st Bitcoin ETF available on the stock market, and other options like Grayscale Bitcoin Trust (OTC:GBTC) can give you exposure to Bitcoin without directly investing in the asset itself.
Real Estate Investment Trusts (REITS)
REITs are an asset that invests only in real estate operations, such as the purchase and management of residential and commercial real estate, hotels and warehouses. A REIT may also fund other real estate assets such as mortgages. REITs are legally required to pay out at least 90% of their taxable income to investors to avoid liability for U.S. income tax, though many aim for a full 100% payout.
REITs are a particularly attractive investment because they can pay out significant dividends. A number of mutual funds — such as the Vanguard Real Estate Index Fund Investors Shares (MUTF: VGSIX) or the Charles Schwab US REIT ETF (NYSEARCA: SCHH) — invest in a large number of REITs. Participating in one of these funds is equivalent to investing in the American real estate industry. REIT-focused mutual funds can be an excellent option for retirees because they are diverse and can offer good returns. Direct REIT stocks are not suggested for people planning to retire soon since they are slightly riskier than traditional REITs.
You can invest in real estate in order to get steady returns when you retire. You can choose to speculate on a piece of land or remodel a house and sell it off quickly. If you have a substantial amount of savings, you can rent it out and enjoy a monthly income.
When you retire, you have a world of professional experience, and the right idea may be just what you need to start a business. You can invest some of your retirement income into a business that you are passionate about. This strategy could generate returns in addition to your investment.
Benzinga’s Best Retirement Investment Brokers
The table below shows the best retirement investment brokers.
Retiring Doesn’t not Mean the End of Investing
Reaching retirement doesn’t have to mean the end of your investing career. No matter if you’re already enjoying your retirement or you’ve still got a few more years to make the most of your money, it’s never too late to learn more about making smart investments. Looking to invest in yourself first? A free or low-cost investment, Benzinga Pro provides you with the tools and information to support your investment decisions. Come back for more.
Frequently Asked Questions
Questions & Answers
You can invest your money in stocks or bonds. The asset you choose to invest in should be determined by your risk tolerance and your total savings. You might buy a house to rent out or purchase U.S Treasury or municipal bonds. You can also invest in mutual funds to ensure you have access to liquidity when you most need it.
No 1 best investment for retirees emerges because the investment landscape is changing everyday. If you are looking for steady returns and a hedge against inflation, real estate could be a good bet. However, you can also invest in U.S. Treasury bonds, mutual funds, municipal bonds or REITs. The best investment depends on your risk tolerance and the portion of your savings you are willing to invest.