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What Retirees Should Invest In

A lot of people spend their adult lives working and saving to prepare for retirement. But once you hang up your hat, you shouldn’t necessarily stop thinking about saving and investing. It’s not simple to know what to invest in, though, because your situation is unique and there are a number of possible investments and strategies that retirees can use to help extend their savings. A financial advisor can help you ensure you’re optimizing your investment strategy and making the right asset choices for your needs.

1. Municipal Bonds

Though bonds, as a class of securities, are not going to make you particularly high returns, they offer stability and the prospect of some growth. Within this class of securities, retirees should give close consideration to revenue and general obligation municipal bonds. Besides offering investors tax-free interest, these kinds of securities can help keep investors from being pushed into the next highest tax bracket, which is something that pensions and required minimum distributions from IRAs and 401(k)s can do.

Mutual funds focused on municipal bonds are also an attractive option for many retirees. Bond mutual funds let you invest in a variety of bonds, often with staggered maturity dates. You can get consistent income and have your bond investments managed by experienced professionals.

If you find yourself with a large lump sum that needs to be invested and you are retired or close to retirement consider creating a bond ladder. This means buying a series of bonds with staggered maturity dates. This results in the bonds maturing over time, providing a small infusion of cash over consecutive years rather than a big payout all at once.

2. Stocks

What Retirees Should Invest In

Though stocks are generally thought of as a risky investment better fit for younger investors, retirees can still find value in looking to the market as part of their investing strategy. That said, you generally want to be more conservative as you get older. One maxim says that your portfolio’s percentage of stocks should equal 100 minus your age. According to this guideline, if you’re 65, around 35% of your money should be in the stock market, though of course, this will vary depending on personal circumstances and risk tolerance. There are two types of stocks that retirees should give close consideration to.

Defensive Stocks

These kinds of stocks give investors exposure to companies that offer services and products that are seen as essential, unlike what is called consumer discretionary goods and services. Here are four areas to focus your search on when looking for defensive stocks:

  • Utilities: Utility companies provide the necessities of life, like water, electricity and heating.
  • Telecommunications: Phone and internet services are no longer a luxury in today’s economy. Consumers rely on their cell phones and internet services for major parts of their daily lives, including telephone calls, mobile apps, streaming music, movies and television shows.
  • Consumer staples: Consumer staples are the household basics that consumers purchase regularly. Examples include toothpaste, toilet paper and soap.
  • Healthcare: During a recession, consumers may hold off on elective procedures, but they still spend on medicines, regular check-ups and urgent surgeries.

Dividend Stocks

Dividends represent a percentage of profits paid out to shareholders. Not all stocks pay dividends but among the ones that do, there’s a hierarchy. At the top are so-called Dividend Kings and, after them, the Dividend Aristocrats. The former belong to the S&P 500 and have raised their dividends 50 years or more in a row; the latter belong to the S&P 500 and have raised their dividends 25 years or more in a row.

Mutual funds focusing on dividend stocks could also be a good choice. Because mutual funds are managed by top investment professionals, your investment decisions will be made by those in the know. Mutual funds also allow you to invest in many different stocks, diffusing your risk and protecting you if one of the companies doesn’t perform as well as expected.

3. Real Estate Rentals

What Retirees Should Invest In

rental property can be a solid source of income if you have the cash to buy it. If you pay the right price, you can charge rent that will cover taxes and the mortgage, in addition to putting some extra money in your pocket.

Only consider this investment if you’re willing to put in the time and effort, though. Being a landlord is work, so make sure you can handle it. If not, maybe you can afford to hire someone who will.

4. Certificates of Deposit

Certificates of deposit, or CDs, are a strong, low-risk investment option for retirees. Basically, you give a certain amount of money to a bank. Generally, you can choose this amount, though some banks have minimums. When you put the money in, you’ll pick a term, generally from one month to 10 years. You can’t touch the money until the term is up. When it ends, you’ll get your money back, plus interest. The interest rate is predetermined and increases the longer the term.

CDs are great for retirees because they force you to save a certain segment of your money for later in your life — and you earn interest on top of that. Just make sure you can go without the money for the entire term, as you’ll face steep penalties if you take out the money early.

5. Alternatives to Cash

Even though you’re thinking about other investment vehicles, it’s important to remember that you still need to keep cash on hand to cover the necessities like rent or mortgage payments, food and clothes – as well as unexpected expenses.

Retirees should still make sure this money is working for them, though. Rather than letting your cash sit in a checking account or traditional bank savings account where you get no or next-to-no interest, put the money you need immediate access to in a money market account or a high-yield savings account. As of August 2022, it was possible to find high-yield savings accounts offering an annual percentage yield of approximately 2%.

The Bottom Line

There are a lot of ways for retirees to invest even after their working days are done. It is important to do so because you want your retirement nest egg to last as long as possible. And with people living longer than ever, your nest egg may need to stretch further than you thought. From stocks and bonds to cash and certificates of deposit, there are a lot of options. What’s important is finding the right asset allocation for you.

Retirement Planning Tips for Retirement Planning

  • Financial advisors can help retirees get on track with their investments. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • One part of planning for retirement is knowing how much money you’ll be getting from all sources, including the government. Find out how much you’ll get from Uncle Sam with our free Social Security calculator.

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Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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