investing near retirement
Should you still be investing near retirement?
The answer to this question is a loud and clear yes. Putting your money under a pillow may save you from financial calamity for now, but it doesn’t take into account how you will live, how long you will live and how many emergencies you will encounter during your retirement. You want to give yourself the best chance at optimism that more money will be coming in even after the paychecks stop. But there is an enormous difference between investing while that paycheck is always a week or two away and when it stops showing up altogether. While you’re working, you can absorb an investment hiccup now and then. After you retire, you could choke on too many hiccups.
Like just about every other financial decision you’ve had to make in your life, how and where to invest in the shadow of an impending retirement depends to a great extent on your situation. How much have you saved? Where is it invested? How long would it last if your life proceeded without any crises and if you lived 10, 20, 30 years or longer?
It’s safe to say that the wise retiree-to-be will at the very least modify investments in an effort to present less risk of losing money. The one thing you can’t afford to let happen once regular income gives way to Social Security and, with luck, a company pension and 401(k).
The first thing to do when preparing your retirement portfolio is to set aside an emergency fund, never to be touched except for an emergency. Put into a safe account — a regular savings account, for example — an amount of money equal to three months’ living expenses. Make sure the account is easily and quickly accessible.
Next, you and your ALEC Wealth Management Advisor should examine your existing investment portfolio to determine which, if any, are high-risk assets. When you are working, you can tolerate some risk because those assets may offer the most return potential when they are going well. But, upon retirement, you’ll no longer be able to afford a sudden plunge in value. You’ll want to trade in some risk for some stability.
Treasury bonds* are a lower risk investment, for example, and have a fixed rate of interest, which means they guarantee a specific amount of growth over the life of the bond. That growth won’t match the most-successful stock, but it should outpace the worst, and provide you with confidence. Certificates of deposit are another lower risk investment. There is one caveat with CDs**, however, that being that they come with a penalty for early withdrawal. If you’re sure you can leave them where they are for the term of investment, however, they’ll pay more than a standard savings account and guarantee a specific return.
Another option is an annuity**, which is actually an insurance contract. It comes in a variety of forms. The idea of an annuity is that you commit money to it, either in a lump sum or over time. These investments are generally made before retirement when you can afford them. You may choose a fixed annuity, with a fixed interest rate, or a variable annuity, which relies on market investments. Another option is an indexed annuity, which is designed to track the performance of an index, for example, the S&P 500.
The hope at this point in your life is that you had put enough into stocks when you were younger to build wealth. Sage investment strategy would also have ordained that you hand over some of your assets to less volatile but more risk averse investments that would help protect you from serious loss.
Now, it’s time to position your assets with the objective of avoiding financial peril. Have some confidence in the fact that your investments should be a supplement to your lifestyle goals. Social Security and any pension you may have should cover the necessities. Your investments strive to provide you with the confidence of knowing you can handle some adversity and the joy of knowing you can buy and spend, to some extent, anyway, the way you became accustomed to when you were working.
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