It’s important that, as you age, your portfolio does well. Of course, the trick is making that happen. When you’re in your working years, you’ll hear people say you need to invest aggressively to ensure you have enough income in your retirement. Does the same rule apply to when you’re already retired? In some sense of the saying, yes, but you need to manage it right to ensure you come out on the winning side.
Take Some Risks With Your Investments
The basic rule, for when you get older, is to move some of the investments you have into safer vehicles like bonds. However, that’s some not all of them. The reality is that stocks often give you higher returns than bonds do, but they do have some risks to them as well. Still, you’re liable to handle inflation better during retirement if some of your investments are still in stocks and not solely in less risky investments like bonds.
Keep in mind that Americans are living much longer today, and over a quarter of current 65-year-olds will live into their 90s. Your savings and investments need to reflect that situation and will increase as you get older.
You also don’t want to put too much into stocks, since the market can go negative before you know it, ruining your chances for a good nest-egg for retirement. The goal is to find a good mix of stocks and bonds. Forty percent of your money should go into stocks with 60 percent going into bonds. Of course, if you love taking risks, you can always do a 50/50 shot.
Protect Your Interest and Dividend Income
There are two key ways in which stocks can make you money. You can sell shares at a higher price than you paid for them or hold them to collect the dividends. You can also profit from the bonds by selling them for more than you bought for them or you can also hold them to collect the interest.
For the most part, bonds pay interest but not every stock will make dividend payments. If you choose ones that do make payments, you can give yourself some protection when the market is volatile. If you opt for companies that continue to pay dividends, you can offset the losses with that income should you have to sell it.
Be Smart About Your Taxes
A huge misnomer is that senior citizens no longer have to pay taxes after a certain age. Unfortunately, there are two things you can count on in life – death, and taxes. The investment income you get is also taxable, meaning you are taxed during retirement provided the money is held in some brokerage account. A way to reduce the tax bill is to buy into municipal bonds.
These bonds are similar to corporate bonds, paying two times a year and gives you back your principal investment once the term is over. While you pay taxes on the corporate-issued interested, there are no federal taxes on municipal bond interest. If you buy bonds in the state you live in, you won’t pay any local or state taxes either.
Always Watch Your Portfolio
Regardless of how old you are, you should never take the sit back and let it roll approach to an investment portfolio. You need to keep an eye on these investments often and ensure they are going the way you want them to and addressing the needs you have.
It’s to be expected that you’ll need to rebalance the portfolio to make sure that it still has a mixture of bonds and stocks. Remember, you may have to sell certain ones or values may change due to market conditions, which can affect the influence they have on your portfolio. You don’t have to check on it every day, but every two or three months will suffice. You can also do it yourself or hire a financial advisor you trust to do it for you.
You may be retired, but you still need to think about your investments. Be smart about them, so they’ll work the way you want them to while you enjoy those golden years.