12. Investing in Your Sixties and Beyond
Because many people can expect to spend 20 or 30 years or even longer in retirement, you may decide to keep a percentage of your portfolio invested for growth even as you begin either tapping the income from the assets you’ve accumulated during your working life or dipping into your principal. Continuing to seek growth can help protect you against the possibility of running out of money while you’re still alive.
Growth investments
Growth investments that might be appropriate both as you approach retirement and after you retire are a diversified portfolio of large-company stock, stock funds, or stock ETFs, since these established companies tend to pay regular dividends and their stock prices tend to be less volatile than other types of stock. That helps to reduce the risk that your portfolio would lose substantial value in a market downturn.
The percentage of your portfolio that you’re comfortable allocating to potentially more volatile growth investments, such as small-company stock or small-company mutual funds, when you’re nearing or already in retirement is a personal decision. In most cases, it will likely be influenced by how much wealth you’ve already accumulated, your tolerance for risk at this stage of your life, your desire to leave money to your heirs, or other estate planning goals.
You’ll also need to weigh the anticipated expenses you’ll have during retirement. For example, if you or your partner has high ongoing healthcare costs, or you expect you’ll need long-term care in the future, you may be less comfortable putting any of your principal at risk. Certainly if you are fast approaching retirement and do not have unlimited financial resources, you’ll want to think very carefully about taking too aggressive an approach to investing. If the market suffers a serious downturn, it could wipe out the better part of your retirement nest egg. You’d then have little—or no—time to recover from the impact to your financial health.
Remember, too, that you will also have to begin taking required minimum distributions from your tax-deferred retirement plans—by April 1 of the year following the year you turn 70 ½ for IRAs and usually at the time you retire for employer-sponsored plans. You may want to gradually move some of the assets in your accounts into income producing investments, such as mutual funds whose objectives are providing dividend or interest income, stable-value funds, money market accounts, or CDs. Those choices may provide a substantial percentage of the amount you’re required to withdraw each year.
Income investments
Dividend paying stock and the mutual funds that invest in that type of stock can provide regular income, though the amount is not guaranteed and could change to reflect what’s happening with an individual company or the markets in general. If you hold those investments in a regular taxable account, your federal tax on the dividend income can usually be calculated at your long-term capital gains rate—a maximum of 15%—rather than at your marginal tax rate.
Highly rated corporate and municipal bonds plus U.S. Treasury issues provide regular income as well. This income is guaranteed—subject of course to the financial strength of the issuer—which means you can count on receiving regular amounts on a regular schedule.
If you previously purchased a deferred annuity contract to save for your retirement, your sixties is the time when may want to consider annuitizing your contract, which means selecting an option that turns your savings into a steady stream of income.
In addition, you may want to consider investing in an income annuity, also known as an immediate annuity. You usually make a lump-sum purchase—perhaps with a retirement plan payout, proceeds from selling your business, or money from another source. If you select a lifetime payout, these annuities guarantee income for your lifetime or the lifetimes of you and a joint annuitant, subject to the annuity company’s ability to pay claims. That income can be a major boost to your standard of living. As with all other investments, though, you’ll want to do careful research before purchase, including an evaluation of the claims-paying ability of the insurer issuing the contract.
The bottom line
At every stage of your investing life, the more carefully you plan and the more informed the investment decisions you make, the better the chances you’ll have of meeting all of your goals.
Loading ...
