Investing for Retirees

Dec 12, 2023 8:15:33 AM

Investing is a lifelong pursuit, but of course, our investment needs and priorities change as we age. Read on for a quick guide to investing for retirees, including how to lower your tax budget, the importance of exercising caution in a volatile market, and an introduction to annuities.

Lower Your Tax Burden

A smart investment strategy should lower your tax burden. Make sure that you are maxing out all tax-efficient retirement accounts, including a 401(k) which you may have from your former employer, and an Individual Retirement Account (IRA) which you can open on your own. Be sure to contribute investment dollars into these accounts first, before putting money into other investment vehicles. In addition, avoid making withdrawals from any of these tax-efficient accounts before the qualified distribution period begins (age 59½) in order to avoid losing out on the accounts’ tax advantages.

Adjust Your Monthly Budget

To understand how much money is available to invest, you first need to understand how much to budget for everyday spending needs. Most people in retirement will see a shift in spending, with more money going toward healthcare expenses and, depending on your family situation, less money being put toward family-oriented costs such as raising dependents. You may also wish to set aside more money for activities like travel or eating out. Whatever your situation, be sure to evaluate and adjust your monthly household budget before deciding how much extra you can afford to invest.

Exercise Caution in a Volatile Market

In times of market volatility, investment experts recommend sticking with a long-term strategy rather than making an emotionally charged decision. This advice also applies to retirees who may be tempted to sell at a market low in order to protect their nest egg. Generally, it’s not a good idea to make any investment decision that’s driven by panic. Instead, do your research, choose a diverse strategy for the long-term, and exercise caution when diverting away from it. Of course, always consult an investment professional if you’re unsure about the best move to make.

Consider an Annuity

An annuity is a specific type of investment product intended to pay out an income in the future. Most commonly, an annuity is purchased in the form of a contract with a life insurance company. As the purchaser, you pay a certain amount of money in premiums; then, at the agreed upon time, you will begin to receive payouts from the company. An annuity differs from life insurance because it’s usually intended to provide a source of income to the purchaser, rather than to provide benefits to living family members. Annuities can be designed in a number of ways, based on the purchaser’s age, risk appetite, and how the annuity fits into an overall investment strategy.

Keep Cash on Hand

A good investment strategy includes enough cash reserves so that if an emergency occurs, you don’t need to pull funds from a long-term investment vehicles. It’s generally recommended to keep enough money in an emergency account to fund three to six months of expenses. Even though retirees don’t need to worry about the financial impacts of a sudden job loss, it’s still a good idea to aim for an emergency account with around three months of living expenses. Make sure this money is liquid, meaning you can withdraw it immediately if a large and unexpected cost should arise.

Plan Your Estate

For many people, a retirement investment strategy also includes estate planning. Estate planning means making a plan in advance about what will happen to your assets after your death. The process of estate planning includes financial and investment planning, as well as broader health and financial directives so that if you can no longer express your wishes, another person is able to make the best possible decisions on your behalf. Check out the HUECU blog for more information on how to kickstart the estate planning process, including how to simplify the process via digital estate planning tools.

Tags: Retirement, Investing