The average life expectancy of a person who has reached the age of 65 in the U.S. is roughly 85 years (the key word being average). The chances of a now 65-year-old living past the age of 90 are one in three people. If you retire at 60 years old and live up to 90, how long do you have to make your retirement savings last? I am sure you can do the math. In other words, that is a cumbersome weight for a traditional retirement plan to carry. The burning question then is ‘Siri (or Alexa), how do we make retirement money last?’ Conventional wisdom says it’s through investing.
Hanging up one’s hat always beckons a raising of a toast, not because it is time to wind down and finish out your life, but because retirement is simply the next big phase that will make you feel alive. Of course, retirement is ‘that’ milestone. Retirement should be about putting your legs up and sipping on that cocktail by the seaside. Nobody is denying that, but do you know what else it is about? It is about making an investment plan that will ride out your lifespan and not the other way around.
How do you Start Investing Like A (Wise) 35-Year-Old
Because age is just a number and Investing has no limit, here is an investment guide for both retirees and pre-retirees. Retirement is a puzzling stage for many. But having an investment plan makes it a little less complex. Figuring out this process happens in stages. First and foremost open up that vault, bring out your nest eggs, and figure out how much money you have already saved. If you are someone who has not retired yet and is looking forward to making it to that finish line, financial advisors recommend that saving 10% to 15% of your income is a safe place to start.
After establishing the figures that you should save or have saved already, it is time to discover what to invest in. This step comes with a disclaimer. It may be tempting to invest based on your whims and fancies. That adventurous streak of your retired or about-to-retire brain may be tempting you to invest without considering everything that you should – so don’t bite that apple. The one thing that you have got that 30-year-olds don’t is age, with which should come wisdom. Employ all that smartness you have acquired over the years and opt for the safest investment. Provided below is a list of options that allow you to create a financially secure future.
Municipal Bonds. Even though these may not make particularly high returns they function as a class of security. Bonds are more often than not a conservative investment option. However, it assures a predictable income stream and a lower risk in comparison to many investment options out there. Government and corporate bonds prove to be a safe haven during volatile market conditions, making them a top-ranked choice for retirees seeking stability. The cherry on the top? Bonds are tax-deferred.
However, what if you want to invest a lump sum? The best bet is to consider creating a bond ladder. This means purchasing a series of bonds with staggered maturity dates. Instead of investing in bonds with a single maturity date, investors create a ‘ladder’ by purchasing bonds with different maturity dates spread across various intervals.
For instance, let us say an investor wants to create a bond ladder with a duration of five years. They may purchase bonds with maturities of one year, two years, three, four, and five years. As each bond matures, the investor can reinvest the proceeds into a new bond with a longer maturity causing the ladder to extend. Do we smell an income flow strategy? Yes, we do.
Target Date Funds: This is for the ones who are one step away from retiring. Pick the accurate target date (the year closest to when you are planning to retire) and the fund company will naturally adjust your asset allocation. The target date represents the approximate year when the investor expects to retire and start withdrawing from the fund.
As the date approaches, the fund automatically shifts its asset allocation to reduce its exposure to higher-risk assets like stocks and increase its allocation to lower-risk assets like bonds and cash. There are diverse target-date funds such as mutual funds, index funds, and exchange-traded funds. The most important prerequisite to this is that you are decisive and know about your retirement date. After that, it will be a smooth sail.
Annuities: An absolute essential for a retirement life is good sleep. Annuities help you achieve just that. Claiming ownership of an annuity covers the base expenses of an individual via income streams that will outlive them. Simply, annuities are financial products that are designed to provide a regular inflow of income during the retirement period.
When an individual buys an annuity, they make a lump-sum payment or even a series of payments to the insurance company. In return, the insurance company ensures to provide regular payments, either immediately or over time. Annuity types range from immediate annuities to deferred annuities. While annuities may guarantee a fixed income and peace of mind, purchasing them can be a tad costly.
Certificates of Deposit (CDs): This type of investment is considered to be a strong, low-risk investment for retirees. Primarily, you give a certain amount of money to a bank (you are free to choose the numbers, though some banks have minimums) and purchase a CD. Once you hand over the money, you pick a predetermined term. The money will then be out of bounds for you until the term is up. The financial institution promises to pay the depositor a fixed interest for the duration of the CD term. Once the term ends, you will get the money and the interest. While this does have pros, its concerns are that it involves an opportunity cost, lacks liquidity, and can be vulnerable to the risk of inflation.
Undoubtedly, there is a good selection of investment options that one can sieve through and pick from. However, it is important to seek financial advice and maintain diversification when choosing the proper investment plan that upgrades your retired life. Because as the adage rightfully says, ‘don’t put all your eggs in one basket’.
With an investment plan, your age may not be the only number that increases
Once you have read the ‘How should we invest’ section, a question that pops up is ‘Why should we invest’. Investment for retirees may sound like an oxymoron. Especially because people brand themselves as old once they have worked their adult lives saving to prepare for retirement. But nowhere does it say that once you retire you should completely abandon thinking about saving and investing. In fact, retiring should entice you more into considering an investment plan. Because once you take a look at the big picture, it will jolt you into reality. The current world is experiencing an increased life expectancy and a rapidly fluctuating economic situation. Against a backdrop as such, the need of the hour has become preserving and growing one’s wealth during retirement to ensure some level of financial security. Once retirement strikes, the regular income that you used to get comes to a halt. In addition, the allowances and privileges that you once received as part of your employment perks will completely stop.
Apart from the fact that investments will provide you with a steady income to take care of your health (pay your medical bills), engage in leisurely activities, and fulfil your basic needs, it will also shield you from inflation. It will help your nest egg to last for as long as you live and even further.
Remember, the only numbers that really matter are the ones that are in your investment plans. You can enjoy that gorgeous sunset, with your favorite cocktail in one hand and a safe and secure investment plan in the other.
(Sandunlekha Ekanayake)