Investing during retirement to ensure your savings last

Retirement is a major accomplishment for most people. But how should you approach investing now that you’re no longer earning a salary? 

Retirement income boost

When the time finally comes for you to stop working, your investment risk profile and strategy will almost certainly need to be adjusted to look at ways of making your money work as hard as possible. This is also a good time to look at how balanced your investments are; whether you are exposed to more risk than you are comfortable with in certain areas; how much you can afford to withdraw each year; and whether this balances with your needs.

Investment options: what does retirement mean for you?

Of course, retirement means different things to different people. For some, it’s about never working again and spending their days doing the things they enjoy most. For others, retirement means working part-time to stay busy and engaged in a profession, but without the need to earn a regular income.

Regardless of what retirement looks like to you, the key is to enjoy this time of your life while making sure you don’t outlive your retirement savings. For many retirees, that means developing an investing strategy that will allow them to withdraw money from their portfolio, while still enabling it to grow over the longer term.

There are a lot of ways to invest even after your working days are done. It goes without saying that once you’ve retired, you’ll want your retirement nest egg to last as long as possible. But with people living longer than ever, it may need to stretch further than you’d thought when you first started saving for retirement.

For most retirees, this means developing a robust investment strategy that will allow you to withdraw money from your portfolio while still enabling it to grow over the longer term.

Keeping up with inflation

Given the potential investment options available to retirees, it’s important to consider the effects of future financial market volatility and inflation.

It’s critical for retirees’ investments to keep up with inflation throughout their retirement years. Cutting exposure to equities too aggressively could hinder the growth of a nest egg, potentially leaving retirees with less than they need.

While many should stay invested, it’s wise to make sure a good portion of your investments are in safer assets. Today’s low interest rate environment means your money may not grow quickly, or even keep up with inflation; but those assets will likely be better protected than equities in a market downturn. If appropriate, you should typically have a healthy mix of equities, bonds and other investments, such as property. The right mix will depend on an individual’s personal risk tolerance.

Retirees should also set up their portfolios in a way that better protects the funds they may need in the next five years, in the event of future stock market corrections.

Toning down risk appetite

It can be hard for some retirees to tone down their risk appetite when investing during their retirement years, following decades of investing for growth. But diversification is just as important for investors at any age; it may be most critical when investing in retirement.

This is a time of your life to ensure that you spread your investments across and within asset classes to make sure you are well diversified. You can spread your money across the three major asset classes (equities, bonds and cash equivalents). This is ‘asset allocation’. To balance the risks and returns of the asset classes – and the investment within the asset class itself – you can also spread your money across various investment options within a particular asset class.

Increasing financial security

Even the most careful plans and preparations for retirement can fall apart due to any number of post-retirement risks. However, making the right investment decisions can help you increase your financial security and provide income that you can use to live comfortably after you stop working.

It is a good idea to try and set aside up to two years of living expenses in cash. Having some money that you can access quickly in an emergency will protect you from the need to sell some of your riskier investments at a loss. It also covers you for a period of time if you are falling slightly short of your income generation target.

Investing during retirement: professional advice

If you’re on the path to or currently in retirement, you will want to make your money go the distance. To find out how we can help you explore your options for investing during retirement, please get in touch. At George Square Financial Management, we excel at analysing your existing portfolio, assessing how this can best be optimised, restructured, or better managed – often in a more tax efficient or cost-effective manner.