Why It’s Never Too Late to Start Investing: Solid Strategies for Retirees

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You’ve worked hard all of your life, and retirement is now just a few years down the road. While you’re looking forward to finally having the free time to do as you wish, you’re probably also a bit apprehensive. As life expectancies rise, this generation’s retirees statistically have many more years to enjoy than previous generations. That’s great news, but it also brings with it some financial challenges. How do you prepare for a potential 30-year retirement? Retirement planning and preparation through IRAs and 401(k)s are obviously important, but for many it makes sense to invest beyond that.

While strategies differ depending on individual situations, putting some of your money in the stock market is often necessary to keep ahead of inflation. Without placing a portion of your savings in the market, you run the risk of outliving your savings. But investing can be scary, especially as you start nearing retirement and can’t risk losing a big chunk of your money overnight. Below we discuss how you should think about the stock market as you head towards retirement.

The Rule of 100

Unlike a money market account, there is no guaranteed return when you invest in stocks. However, the historical return on equities (shares in a company) has long outperformed bonds and cash savings—in recent years, cash instruments have paid relatively little in interest. However, because the stock market is volatile, you don’t want to put all of your retirement money into stocks either.

A basic formula used by financial planners is the “Rule of 100”. This involves subtracting your age from 100, and putting that percentage in stocks. For example, if you are 70, you should have 30% of your retirement savings in stocks. Because of longer life expectancies, some mutual fund companies with “target dates” for retirements have upped the Rule of 100 to 110. Under this system, a 70-year-old would have 40% of retirement savings in equities. The important thing to remember is that the stock market isn’t easy to predict, and because of this a return on investment can’t be guaranteed. Some risk will always be involved, so you need to decide how much risk you’re comfortable with, and ask yourself how you can mitigate that risk by spreading your money around.

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Think Long Term

When it comes to investing in the stock market, you must take the long-term approach, even as you’re nearing retirement. When stocks took a dive in 2007, many panicked investors sold their securities, often losing considerable sums of money in the process. A significant number of those who resisted the urge to sell, however, found they had made up losses by 2012. Today, the stock market is at an all-time high and those investors have been rewarded handsomely. What is the lesson from this? Plan to keep money invested in the stock market for at least five years. The longer you can leave your money in the market, the higher the odds of seeing a decent return on investment. Also, you don’t want to be in a situation where you have no option but to withdraw funds during a downturn, so once again, make use of a variety of investment vehicles and ensure that you always have money on hand for the short term.

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Dividend Stocks

Dividend stocks are an especially attractive investment for older investors. Some companies pay dividends to shareholders on a quarterly basis based on earnings, either in cash or additional shares. Some of the best-known, highest quality companies in the world pay dividends, and these dividend stocks are typically safer than growth stocks, which increases its capital value instead of providing income—lending them much more volatility.

Look for stocks with a good track record of paying dividends. For best results, focus on companies that have done well in previous bear markets. Consumer staples and utility companies are among the top choices. If you’re looking for a source of income during retirement, stocks with a high dividend yield make particular sense. For example, if a stock costs $10 and pays a dividend of $1, it has a yield of 10%. In simple terms, this means that you’re earning 10% interest on your investment, which is very good. It’s typically older but stable companies that offer a high yield. These aren’t growing quickly, but they deliver a reliable stream of income.

The Bucket Approach

As you near and enter retirement, it’s a good idea to take a “bucket approach” to your money. This method involves dividing your savings into three buckets. The first bucket is for living expenses for the first few years of retirement. These funds are usually kept in a bank account and not invested in anything that introduces risk. The second bucket, invested conservatively in fixed-income investments such as bonds, should see you through the first decade of retirement. The third bucket is for the long-term, and includes stocks that you don’t plan to sell until at least the beginning of your second retirement decade. If there is a market downturn in the interim, investments in your third bucket should have time to recover.

If you would like to know more about the best ways to save for your retirement through stocks and other financial products, contact Citadel today. We can help you create the right retirement and investing plan for your needs.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Citadel has contracted with CFS to make non-deposit investment products and services available to credit union members.

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