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How to Choose Investments After Retirement

date December 28, 2020 time 5 min read 660 views

After retirement, you move from the accumulation phase to the drawdown phase. Here’s where you need to balance your income and expenses or risk outliving your retirement savings. After retirement is one of the best times to start investing because you will likely find yourself with a lot more free time for managing your assets. Here’s how to get started today.

You should be investing after retirement
You should be investing after retirement (source: pixabay.com)

“Where should I invest my money after retirement?” This is the question on the minds of many retirees.

All over the world, life expectancy is increasing steadily. Living for 30 or more years after retirement is the new reality. As a retiree, this calls for better after retirement financial planning.

If you want to live comfortably in your golden years. The last thing you want is for your money to run out in the twilight years of your life.

Now that you are in retirement, you’re probably finding yourself wondering what to do. One of the best ways to make sure you have enough income after retirement is by investing.

How to invest after retirement

So, you should start investing in retirement. First, you need to understand how your investing situation may be different from other investors.

The investments you choose should grow your after retirement income fast enough to cover expenses but maintain asset safety, since it’s likely your only source of income.

Once you retire, you need to be more cautious about where you put your money as you may have little or no money coming in from other sources. 

Here are six things to consider as part of your investment strategy after retirement.

1. Separate retirement assets from inheritance assets

You’re not going to live forever, but your money can. When in retirement you need to decide where your money will go when you pass on and how much of it you’ll need to live.

You want to keep your inheritance as secure as possible but maybe can afford to play around with your retirement assets. That means keeping separate investment accounts for your inheritance and retirement assets.

2. Sustain your required minimum distribution (RMD)

A required minimum distribution (RMD) is the amount of money you need to leave in your retirement account to avoid getting taxed. RMD applies to most retirement accounts including 401(k)s, Individual Retirement Accounts (IRAs), 403(b)s, and 407(b)s. 

Your goal after retirement should be to have a retirement account withdrawal rate that lets you meet your income needs without worrying about taxes.

With this in mind, you need to remember to keep your investment costs lower than your retirement income. For example, if you invest in actively managed investments you’ll have to deal with management costs which can significantly reduce your earnings.

3. Avoid risky investments

Avoid high-risk investments for after retirement income as you may not have time to recover from potential losses
Avoid high-risk investments for after retirement income as you may not have time to recover from potential losses (source: pixabay.com)

The closer you get to retirement, the more investments like stocks (equity) and stock mutual funds can be your enemy. 

While these investments can give you above-average returns, you may lose everything if a company doesn’t perform well and you don’t do your research. And if you lose money, you may not have much time to recover and the money may be lost forever.

4. If you have a large nest egg, focus on safe, low-return investments

Low-return investments make more sense when you have a large sum of money to invest, say, at least $100,000. If you put $100,000 in an investment returning even mild returns of 5%, you can make at least $4,000 a year or even more if the rate is compounded.

Investments like Certificates of Deposit (CDs), bank savings accounts, and government securities are generally what most people think about when talking about low-risk investment. But today the yields from most of these are lower than 2%. Remember you also want to beat the current rate of inflation to maintain the value of your money.

Today safe investors are moving their assets into other options like peer-to-peer lending.

5. Consider ease of withdrawal in case of emergencies

Some investments, like fixed deposits, lock up your money until the investment term ends. While locking up your money generally means you’ll be earning better returns, what happens when you need some quick cash in cases like medical emergencies?

When investing you should keep your funds in at least one or two flexible investment options that allow you to withdraw money freely in case of emergencies.

4 of the best places to invest after retirement

Having all these checkers in mind, where should you invest after retirement? Here is a couple of after retirement investment options to consider:

1. Peer to peer lending platforms

Peer to peer lending is increasingly becoming popular as people run away from complex investments and the low rates from traditional options like banks. P2P platforms like MyConstant or Prosper allow you to earn above-average returns on your USD deposits by lending directly to borrowers through personal loans.

Peer-to-peer (P2P) is a high-return, minimal risk investment
Peer-to-peer (P2P) is a high-return, minimal risk investment (source: glispa.com)

2. Exchange-traded funds (ETFs)

 An Exchange Traded Fund (ETF), is a portfolio that imitates the performance of a market sector or region. Since these funds track the performance of a whole sector, there is usually less need for active management, which reduces investment costs.

The Vanguard S&P 500 ETF (VOO) is an excellent Index ETF, with a Dividend Yield of 2.05% and a 0.03% expense ratio.

3. Index funds

Index funds track the rate of an entire index like the S&P 500 or the NASDAQ. They have generally steady returns with average 10-year rates around 7%. Like ETFs, they are tax efficient as they don’t entail a lot of buying and selling within the fund.

4. Real assets 

Real assets include investments like natural resources and real estate.  

Mortgage REITs (Real Estate Investment Trusts) are a good example of an accessible real asset. A REIT is a company that runs income-producing properties that you can buy into.

Mortgage REITs are less volatile than stocks as they rely on the interest income from mortgagors. REITs have historically outperformed during recessions and you can expect earnings at an average rate of 4.33%.

For more options check out our comprehensive list of retirement investment options.

Where to grow your after retirement income with rates as high as 7%

To sum up, the best after retirement investments are low-risk, low-cost, and provide high enough returns to help you grow your after retirement money. 

At MyConstant, we do our best to meet all those criteria.

When you invest in our anytime-withdrawal instant access account, you grow your money at a competitive rate of 4% APY compounded every second with free, unlimited, and anytime withdrawals.

You also get: 

  • A very low risk of default as your money is lent to multiple markets and collateralized borrowers
  • There is no minimum balance, so you can start with as little as you have
  • Compounding every second for higher earnings
  • Invest and earn from wherever you are around the globe

Want fixed terms for higher rates? We also offer normal peer-to-peer investments earning up to 7% APR on a 6-month term.

How much do you want to grow? Sign up and start growing your after retirement income with MyConstant today.

**Disclaimer: This article is for informational purposes only. Please do your own research before making any major financial decision.

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George Schooling

George Schooling

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