When you retire, you need your money to work for you. After years of saving and investing, you want to know: "How do I make my money last?"
Wealthy retirees are already at a great starting point. But even with a strong financial base, it's important to have an investment strategy that manages your assets while also letting them have an opportunity to grow. Here are some ways to invest when you are in your 60s, 70s, and beyond.
Ask the Appropriate Questions
Before you make any big money moves, you may need to ask yourself a few key questions, which might include:
● How long do I need this money to last?
● What are my annual expenses?
● What income do I get from Social Security, pensions, annuities, rent, or other sources?
● How much do I need to take from my savings every year to cover basic expenses?
Once you know the answers to these questions, you may decide how to allocate your money—whether that means investing it, saving with certificates of deposit, keeping it in cash, spending it, or some other strategy.
Stay Balanced with Your Investments
As you get older, you’ll probably want to take less risk than you did when you were just starting out. But that doesn’t mean you should stop trying to increase your investments.
Work with a financial professional to develop an investment plan that is appropriate for your circumstances, including your age, health, and obligations.
Safe Ways to Keep Growing Your Savings
When you're retired, your risk tolerance commonly decreases. Fortunately, there are some low-risk investments to consider that earn interest without putting your principal at stake.
1. Certificates of Deposit (CDs)
Certificates of deposit (CDs) allow you to deposit money with a bank or credit union for a specified period of time in exchange for a fixed rate of interest.When the CD matures, you receive your original deposit plus any accrued interest that has not already been paid out. Some CDs pay interest periodically during the term, while others pay it at maturity. CDs are generally considered a conservative savings vehicle, particularly when issued by an FDIC-insured bank or an NCUA-insured credit union, and when deposits remain within applicable insurance limits. The standard FDIC insurance limit is $250,000 per depositor, per insured bank, per ownership category.
Some investors use a strategy known as CD laddering, in which multiple CDs with different maturity dates are purchased. For example, if you invest $50,000 equally among five CDs with maturities ranging from one to five years, one CD will mature each year. As each CD matures, you can choose to use the funds or reinvest them in a new CD, potentiallyproviding periodic liquidity while maintaining exposure to potentially higher yields available on longer-term CDs.
2. Treasury Bills
Treasury bills (T-bills) are short-term debt securities issued by the U.S. Treasury and backed by the full faith and credit of the U.S. government. Rather than paying periodic interest, T-bills are generally purchased at a discount and mature at their full face value, with the difference representing your earnings. If you hold a T-bill until maturity, you will receive its full-face value. While T-bills are considered to have very low credit risk, they are subject to inflation risk, meaning rising prices can reduce the purchasing power of your investment over time.[i]
3. High-Yield Savings Accounts
High-yield savings accounts work much like traditional savings accounts, but they typically offer higher interest rates. Funds generally remain accessible, although some banks may limit certain types of withdrawals or transfers, and interest rates can change over time. Deposits at FDIC-insured banks and NCUA-insured credit unions are protected up to applicable insurance limits.[ii]
4. Fixed Annuities
Certain annuities allow you to invest money with an insurance company in exchange for a stream of income, which may begin immediately or at a future date, depending on the contract. For some retirees, an annuity can provide a source of predictable income and may help address concerns about outliving their savings. Before purchasing an annuity, carefully review the contract's features, costs, and withdrawal restrictions, and consider the financial strength of the issuing insurer. Annuity guarantees are based on the claims-paying ability of the issuing insurance company.[iii]
5. Money Market Accounts
Money market accounts are part checking account, part savings account. With these accounts, you earn higher interest like a savings account, but also write checks or use a debit card.
Don’t Forget About Required Minimum Distributions
Once you reach the age at which RMDs apply, you generally must begin taking required minimum distributions from your Traditional IRA and most employer-sponsored retirement plans. These distributions are typically taxable as ordinary income. Because RMDs can affect your tax situation, it may be beneficial to work with a financial professional to develop a withdrawal strategy.
If you have substantial assets in tax-deferred retirement accounts, strategies such as gradual withdrawals, Roth conversions, or charitable giving may help manage future RMDs and their tax impact.[iv]
Extra Strategies for Wealthy Retirees
If you have more savings than you need for daily living, there are a few extra ways to use your money wisely.
First, investigate life insurance policies that include benefits for long-term care costs. Long-term care might be expensive, so having a policy in place to cover this care may help manage your assets.
You may also use your investments to cover any estate taxes or other expenses, helping your loved ones avoid selling assets or property to pay these taxes after you're gone. And savings may also be used to help pay for your grandchild's college education or even set them up with their own life insurance policy that may build value over time.
If your grandchildren have any earned income while they're working and in school, you might even help contribute to a Roth IRA for them (up to the amount of their annual earnings). Having a fully-funded Roth at a young age may help set the path for a managed financial future.
Final Thoughts
Even in retirement, your money may keep growing. You just need to be smart about where you put it. For most retirees, this means keeping some in safe places, keeping some growing, and making a plan for how and when to spend funds.
Most importantly, don't go it alone. A trusted financial professional might help you choose the appropriate strategies for your life, family, and future. If you need help making your retirement money last, talk about a plan that fits your goals and your lifestyle. Access our checklist for more information and some helpful tips.
Important Disclosures:
Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual.
This article was prepared by WriterAccess
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