If You Can Save in Retirement, Put It Where It’ll Count
In economic downturns everyone tends to tighten their budgets, and that includes retirees. In fact you may find you’re actually saving in retirement after paying your regular expenses. So where should you put this ‘extra’ savings as a retiree?
You may tend to just put it into your retirement savings into a bank account. But that makes your money vulnerable to inflation and unable to participate in market upturns. Its earnings are also taxed yearly - you may as well put it under the mattress.
Better to make it work toward ensuring more for you in the future. At 65 you statistically have some 20 years of remaining life expectancy. Long before that time elapses, both inflation and economic upturns will affect your holdings.
Presuming that you’ve stashed anywhere from 1 to 2 years of easy-to-access emergency money, you should put your ‘extra’ retirement savings into investments of a longer time horizon. Here, you’re looking for equity growth – both to offset the effects of inflation and further capitalize on the eventual rebound of the economy and the stock market.
Be sure to diversify your retirement savings among a variety of equity portfolios. Although you may invest some in funds that cater to large capitalization stocks, you should try to include real estate investments, international stocks, emerging markets, and smaller U.S. stocks.
These investments will reside in your ‘taxable’ accounts since they come from investment earnings and not work earnings. And as equity-based investments, their annual earnings should be small, since you’re investing for ‘growth in principal’. They may not ‘move’ for a while, but remember, you’ve already proven you don’t need this money.
Consider this money outside your normal portfolio arranged according to your risk profile and income requirements. This way you can afford to risk a small portion of retirement savings and wait sufficient time for it to bloom.
For the most conservative investors, consider index-linked CDs. These are FDIC insured CDs that pay interest based on increases in the stock market. If the market falls, you original principal is guaranteed. If the market rises, your index-linked CD increases in value. Similar to this alternative, are equity-indexed annuities. The same principals hold. If the market declines, the issuing insurance company guarantees your principal. If the market advances, your annuity balance participates in the gain. Consult a retirement advisor to learn about your options for saving in retirement.
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February 6th, 2009 at 10:58 am
Your readers might be interested in this release by the University of Maryland’s Prof. Nancy Schlossberg - “Surviving Troubled Times.”
February 7th, 2009 at 5:56 pm
This is good advice - diversification is just as important after retirement, especially as medicial technology advances and lifespans increase. I’ve heard some scientists mention that, given the current progress of medicine, a lifespan of 120 years or more is well within reach of those who are currently middle aged.
Passive Incomes last blog post..Is The Economy Weighing on You?
February 17th, 2009 at 2:53 pm
Good post. I like to keep a fair amount in precious metals: gold and silver. The reason being that they will never completely loose value - gold or silver will always retain some value - even if the price crashes, unlike stocks.
Another reason I like gold & silver is that currently there is a lot money being pumped into the markets which will manifest itself in inflation in the future and they’re a good hedge against inflation.
Income Blogs last blog post..Jim Rogers Video on US Bailout
February 28th, 2009 at 7:33 am
Diversifying is always a plus factor when considering profit in a passive manner. For those who want to play safe and are still young, having their money entered into time deposits is enough to bring in a small fraction of income.
March 12th, 2009 at 12:40 pm
i agree, being safe and putting your money in a place that is slower growing but guaranteed is a good place at this point in time.
March 15th, 2009 at 11:44 am
I think aaa municipal and corproate bonds would be another good idea. They give income and can go up in price since they are down since last year.
Best etf funds lits last blog post..Gold double long etf.
April 2nd, 2009 at 1:04 am
Nowadays investing in gold seems like advice everyone gives. I would not advise someone to invest in holiday homes, especially not luxury homes abroad which for a long time have been overvalued because it sounds cheap. Do an investment like that and be prepared it will be hard to sell if you need to.
April 21st, 2009 at 12:12 am
i join you in this case, in this days when world is passing from the biggest crisis being safe and putting your money in such a place that is slower growing but guaranteed is a good place at this point in time.
May 12th, 2009 at 10:45 am
That’s great advice. A retiree’s worst enemy is inflation… But the silver lining in the latest economic downturn is that so many great assets are selling at low prices relative to their past worth. The right rental property can be a great investment in this climate. Rental income is offset by depreciation, and thus, is tax-free. So you beat inflation and taxes. Meanwhile, traditional blue-chips like Coca-Cola (KO) and PepsiCo (PEP) are trading at multi-year lows, offering solid dividends, no exposure to large debts, and great brand products which promise to beat inflation over the long-term.
Do what this post says… Don’t put extra savings in a low-interest bank account!
May 23rd, 2009 at 7:05 am
I like anything that provides a income. Reits and trust and even bond funds. This way i can reinvest income and make more over time. I try to average over 5% return so it keeps up with finlation and will keep my principal while i take the income.
May 24th, 2009 at 7:30 am
Diversifying your retirement assets is critical. I think right now is the best time to invest in real estate. With the vast amount of foreclosures out there, a person could easily make an investment that would double in value over the next 5 years.
June 3rd, 2009 at 2:25 am
In my opinion, the saving portfolio recommended was for someone building wealth to retire on. Someone who already has built up their retirement fund needs to worry about protecting it. A portfolio you have to live on should take less risk than a growth-oriented investment mix. This is due to your investing time horizon before/after retire.
What should that portfolio look like? I think, the beter balance.. It will have more fixed-income funds, both to generate income and to hold down volatility.
Living in Retirements last blog post..Paying for Your Social Security Pension
June 6th, 2009 at 12:53 am
I agree with the previous comment. Many people make take advantage of hard times and make money when the market is depressed - never more true than in real estate. Prices in real estate always climb back up. I saw this happen in Argentina, after the country went bankrupt.
Traceys last blog post..Sniffing Out Scammers on Sitepoint - Method #1 PPC Research
July 2nd, 2009 at 8:36 am
i agree, being safe and putting your money in a place that is slower growing but guaranteed is a good place at this point in time
July 8th, 2009 at 3:31 pm
As we transition from spenders to savers, this is excellent advice. I know this economic downturn has me changing my ways.
- Heartland Energy Colorado
August 11th, 2009 at 10:39 am
Good post. 401k is one of my investment vehicle especially when your company matches your contribution. I am lucky that my company offers 75% match of how much I contribute. Always save first before you start spending!
August 17th, 2009 at 11:58 pm
My money isn’t invested in stocks or fiat currency where the potential for hyperinflation in this current economic scenario could eat away profits. I’m in gold and silver bullion.
August 27th, 2009 at 11:16 am
People have a short memory and most are very used spending everything they have. It will come to bite again and again. Thanks for your post!
August 27th, 2009 at 6:47 pm
Diversifying your investment portfolio is the most basic rule in investing. I stashed some cash on a high yield savings account which I can easily get in times of emergency. Opposed to some of investors’ theory, I believe that the recession is also the best time to buy stocks. Share prices are low but the catch is to buy stock from good standing companies and from panic sellers. Gold and silver is a good option too.
September 8th, 2009 at 7:57 pm
I agree with you about having folks invest more of their money aggressively. It seems that most advisers tell their clients to be far more conservative than they need to be. Like you mention someone who is sixty five has a long life ahead of them if they remain healthy. Having a time line of twenty years certainly makes more sense to have a longer term growth investement strategy.
September 28th, 2009 at 12:33 pm
Roth 401K is perhaps now the best retirement plan you can use. Even they tax you when you invest in, but it’s tax free when you withdrawal during your retirement. I made a financial calculator before for a company to compare the overall earning with 401k vs Roth 401k. Roth 401K will give you more money at the end.
October 21st, 2009 at 6:21 pm
Thank you for your retirement investment advice. Diversifying is always a good idea when investing, especially while the market is still so uncertain. I also like idea of real estate investments which are usually a pretty safe bet even in this recession. Planning for a long life is a wise choice. People are living longer and healthier so outliving your money can be a devistating consequence of longevity.
November 11th, 2009 at 5:06 pm
I work for a company that specializes in helping people TAKE CONTROL of their retirement funds. By getting it out of the stock market or a former employers 401K and rolled over to an IRA. Then you can do SELF DIRECTED IRA INVESTING, and invest in Gold and Silver or other precious metals, Real Estate, Title Deeds, buying or investing in a business. Anyways I thought some of your readers might be interested in seeing some information about Alternative investments via a SELF DIRECTED IRA.
Thanks for the Great post!
November 16th, 2009 at 12:34 pm
Great advice. I am thinking about ditching my CDs for better returns. They are just not paying anything these days.