At Davidson Capital Management, we’ve been in business for more than 30 years, and we’ve seen that one of the most critical mistakes you can make is putting your finances on autopilot after you retire. Is it tempting to take a break from strategizing once you leave the workforce? Sure. However, if you want to truly enjoy the results of all your hard work and planning, you’ve got to remain active in your finances – including in your post-retirement investing. If you’ve been planning for retirement without much thought as to how you’ll navigate investing once you leave the workforce, below we’ll discuss a few reasons why a post-retirement investment strategy is essential, along with valuable tips on how to get started on creating one that’s right for you.
Post-Retirement Investing: Why You Need a Strategy
There are many reasons why having a post-retirement investment strategy in place is so important, but let’s review a few you should be aware of:
- Maintain Financial Independence: One of the primary reasons for having a strategy for investing after retirement is to maintain financial independence. As a retiree, you’ll no longer receive a steady paycheck, and relying solely on savings may not be sufficient to cover expenses for decades in retirement. A well-planned investment strategy can generate a reliable stream of income, helping you maintain your financial independence and quality of life.
- Combat Inflation: As we have all felt in recent years, inflation erodes the purchasing power of money over time. Even low inflation rates can significantly impact a 100% fixed-income portfolio. A tactically balanced investment portfolio that is actively managed can help you beat inflation by providing you with returns that outpace the rising cost of living. For example, stocks have historically provided better inflation-adjusted returns compared to traditional savings accounts or bonds. Bonds are used in a tactically balanced portfolio to generate income while providing a higher level of market downside protection than an all-stock portfolio.
- Supplement Retirement Income: Retirement often comes with reduced income compared to your working years. However, dividends from stocks, interest from bonds, and capital appreciation from both asset classes can provide additional financial support during retirement. By having an investment strategy tailored to your specific needs and risk tolerance, you can supplement your retirement income.
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- Legacy Planning: Many retirees have a desire to leave a legacy for their loved ones or use their assets to support charitable causes once they’re gone. Having a smart strategy for post-retirement investing helps you grow your wealth, so you’ll be able to pass on assets or contribute to your chosen charitable organizations.
- Weather Financial Storms: The COVID-19 pandemic of 2020 taught us all an invaluable financial lesson, which is that life can be unpredictable and unexpected expenses or emergencies can arise with little to no notice. However, if you have a diversified investment portfolio, it can act as a financial safety net, allowing you to tap into your investments when needed, rather than being forced to deplete your savings or rely on loans. Having access to liquid assets in your investment portfolio is paramount to protecting you from the unforeseen financial storms that could arise during retirement. This is why we recommend all investors avoid annuities of any kind along with a multitude of other insurance products and non-publicly traded investment products being sold across the country and touted in social media.
Tips for Successful Investing After Retirement
Now that we’ve covered the importance of having a strategy for investing after retirement, let’s explore some practical tips to help you get started:
- Assess Your Financial Situation: Begin by calculating your projected monthly retirement expenses. This should include essential living costs and discretionary spending. You’ll also want to determine your expected sources of retirement income, such as Social Security, a pension, investment portfolio, and any other benefits. Having a clear understanding of your financial needs and available resources is a critical first step.
- Define Your Goals, Risk Tolerance, and Risk Capacity: Once you have a solid understanding of your financial landscape, you’ll want to clearly define your financial goals for retirement. Do you aim for financial stability, wealth preservation, capital appreciation, or legacy planning? Consider your risk tolerance, risk capacity, and investment timeline. Generally, retirees should adopt a more conservative approach than younger investors, but the right balance will depend on your specific circumstances, so don’t rely on a cookie-cutter approach.
- Diversify Your Portfolio: As in your working years, diversification remains the key to managing risk. So be sure to spread your investments across various asset classes, including stocks, bonds, cash, and possibly alternative investments like dividend-paying stocks, depending on your financial situation. Diversification can help protect your portfolio from market volatility, while potentially providing you with higher returns.
- Consult with a Registered Investment Advisor: Investing is complex, and in retirement, there is extra pressure to get it right. Seeking advice from a qualified RIA can help you optimize your strategy – and your retirement income. An experienced professional can help you create a customized investment strategy tailored to your unique goals and risk tolerance. They can also create an appropriate asset allocation model, tax planning strategy, and provide active portfolio management. (If you’re looking for a Registered Investment Advisor in Central or South Texas, give us a call!)
SEE ALSO: Embrace the Power of Diversification to Strengthen Your Portfolio
- Consider Income-Generating Investments: As you plan out your investment strategy for retirement, you may want to focus on income-generating investments to build a reliable cash flow during retirement. Some of the more popular options are dividend-paying stocks and bonds. These are assets that can provide you with a consistent stream of income while still preserving your capital.
- Monitor and Adjust: Just like before you retired, your strategy for post-retirement investing should not be static. Be sure to regularly review your portfolio’s performance and asset allocation. Rebalancing your portfolio and reallocating assets can help you stay on track and remain financially supported throughout retirement. If this process seems daunting, then an RIA can take this process off your plate to allow you to enjoy your well-earned retirement.
- Tax-Efficient Strategies: Taxes can be one of the biggest threats to retirees’ financial stability. The need to be mindful of the tax implications of your investment decisions cannot be overstated. Doing the work to make your investment strategy tax-efficient, such as investing in tax-friendly accounts such as IRAs, 401(k)s, or Roth IRAs, will give you the opportunity to minimize your tax liability in retirement. If you’re saving for retirement in a post-tax investment account, be sure to trim investment gains over the years to avoid large capital gain tax bills if or when you decide to eliminate a holding in your portfolio. Building large unrealized gains in a taxable investment portfolio can create a feeling of being trapped in an investment.
Get Intentional About Your Post-Retirement Investing Strategy
Post-retirement investing plays a key role in maintaining financial independence and adapting to changing needs during retirement. A thoughtful approach to investing after retirement helps offset inflation, supports income beyond Social Security or pensions, and can contribute to legacy planning. It’s essential to recognize that no two retirement plans are identical. When creating your strategy, focus on aligning your investments with your unique goals, risk tolerance, and long-term financial requirements to help sustain your retirement lifestyle.
Would you like professional active asset management of your investments before and after retirement? At Davidson Capital Management, our team of Registered Investment Advisors is dedicated to helping our clients develop and maintain an investment strategy. Then we actively manage that strategy to support them for the entirety of their retirement. Contact us today to schedule a personal consultation with our experienced advisors and let’s begin to build a retirement plan that can strengthen your finances for your golden years.
