How Much Investment Risk Should You Take After Retirement?

 

The following is a guest blog post from Stacy Miller. You can learn more about Stacy at her blog Kissyourmoney.com

How Much Investment Risk Should You Take After Retirement?

My dad lost $30,000 after his retirement.

Don’t think that his employer exploited him. He got everything that was due. Dad lost this amount due to some silly investment mistakes he made after his retirement.

Dad was devastated after he lost $30,000. It was a big blow to him. It was his hard earned money and he couldn’t sleep for a few days.

Thankfully, my dad survived. I’m working. So, I can help him financially. Plus, he didn’t use his retirement saving accounts for investments. Thank God!!!!

My dad survived somehow. But this doesn’t mean everyone will survive. If you’re on the verge of retirement, then it’s high time you think how much investment risk you can take. I have seen many people getting into debt after retirement due to fatal investment mistakes. Try to avoid that as much as possible. Your goal should be to maintain a frugal lifestyle and lead a debt free life after retirement.

Here are a few tips to give you an idea of how much investment risk you should take after retirement.

1. Invest in Treasury bonds: One reason why my dad survived is because he invested a big amount in the Treasury bonds to beat inflation. A 10-year treasury bond can give you a ~2.7% yield, which is not a bad figure. Treasury bonds usually give more yield than inflation. If you can hold your bonds for a long time, you can back both the principal and the annual coupon.

You can also invest in CDs. These are zero risk investments since the FDIC guarantees up to $250,000 in losses per person.

Investment risk level – Zero

2. Invest in state municipal bonds: You can invest your liquid net worth in the municipal bonds and sleep peacefully. A 20-year municipal bond can give you a 3.8% – 4% yield and that is tax-free. Municipal bonds are safe investments. The default rate is below 1%. So if you hold municipal bonds for 15.5 years, you can get a very good return.

Just like treasury bonds, you’ll get the principal amount and the annual coupon if you hold the municipal bonds until maturity.

Investment risk level – Low

3. Invest a small amount in the aggregate bond index: It is true that aggregate bond index can give you 5% annual return every year, depending on the time span you’re choosing. But this is a moderately risky investment. There is no assurance that you’ll get your principal back.

You can also buy individual corporate bonds, high yield bonds or emerging market bonds. But these are quite risky. Corporations can default or lose principal value due to financial problems. What will you do then?

Investment risk level – Medium

4. Don’t invest too much in stocks: My dad lost $30,000 due to some mistakes and violent corrections in the stock market. You can buy different types of stocks and get an 8% – 10% returns in a year. But it can also happen that you lose the entire money in a year. So my suggestion is to not invest a huge amount in the stock market. Both the rewards and risks are too high. Think if you can handle that properly.

Investment risk level – Very high

Few tips to lead a debt free life after retirement

Life is better when you don’t have any debt. Here are a few tips that can help you lead a debt-free life   after retirement.

Live frugally to reduce cash outflow

Use reverse mortgage to maintain house and cover expenses

Buy only what you need

Live healthy to reduce your medical expenses

A lesson learned the hard way

Don’t be too greedy since it can ruin your financial life and mental peace. My dad was too greedy at one point of time, and he paid a huge price for that. He invested a big amount in the stock market, which is highly volatile. I told him to sell his stocks several times, but he didn’t take my advice. Plus, his investment advisor was a crook. He guided dad on the wrong path. So make sure you choose a good investment advisor.

Reduce your riskier assets like stocks after retirement. Choose safe bonds and get fixed income every month or year. That’s what I feel but the final decision is yours.

Conclusion

Don’t take too much investment risks after retirement since you’re not working now. You don’t have a steady flow of income now. You can’t afford to lose money or sleep. Both are equally important in your life. If you can generate a significant amount from investments, then I must say you’re the luckiest person in the world. But don’t be too greedy. Try to have a balanced portfolio and minimize your investment risks.

Best of luck!!! Enjoy the golden years of your life.

Author bio – Stacy B Miller is a web enthusiast, blogger and content editor at Oak View Law Group. She writes articles on different financial topics like debt, credit, tax, small business and personal finance. You can know more about her in her blog Kissyourmoney.com

 

Comments

  1. Thanks for the post, Stacy.

    This is very timely in my family. My dad just retired last month from his full-time job. Beyond driving my mom crazy at home by now being home much more often, he already has thoughts on another job to (a) keep him busy (and safe from my mom) and (b) bring in some cash.

    Overall, good points here. I’m passing this link to my dad now. – Mike

    • Hi Mike,
      Stacy wrote an excellent article, with lots of good info, I am glad you are sharing it with your dad. Have a great week!

    • I have similar feelings as you Tom, and have the most cash and fixed income than I have ever had. The older I get the more fixed income helps me sleep at night.

  2. Very good points. Glad to hear Stacy’s dad survived from the investment loss. Yeah, we are more vulnerable to market risks once in retirement, as the steady income is not there anymore to buffer the shock.

    I prefer to have enough cash flow, so I don’t have to make a hard sell when the market is bad. For the financial advisors, it’s always good to verify, no matter how much you trust them. Thanks to Stacy and Tom, for a great article.

    • Sounds like you have a solid plan Helen. I agree with you retirees “are more vulnerable to market risks once in retirement, as the steady income is not there anymore to buffer the shock.”

    • Thanks Enoch, yes Stacy wrote some good points, and I find the older I get the more conservative I become. The hard part is not running out of money in retirement, so you still need to have some growth in your portfolio. I guess it is all about balance.

  3. I agree with your asset allocation for retirement. For equities I would recommend investing in dividend funds. That way even if the market goes down it still generates income. I would probably have 60% in Total Bond Index.

    • Hi DG
      Dividends are my favorite investments. For my age I probably have too much in stocks and not enough in fixed income but I am still working so I am comfortable with my allocation. Thanks for stopping by.

  4. I don’t think it’s really fair to say that investing in stocks is “very high” risk… I think this goes without saying but it heavily depends on what stocks you’re investing in. And you should also be investing for the long term. Of course if you buy a bunch of stock and the market corrects and you pull out you’re going to lose money.

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