Why investing after retirement is important.
Investing doesn't end with retirement. Since retirement can last several decades, many retirees worry they will outlive their savings by spending too quickly or suffering from inflation and rising healthcare costs. One solution to combat these fears is to continue investing during retirement.
"Investing post-retirement should focus on the ability to bear risk," says Mel J. Casey, CFA and senior portfolio manager at FBB Capital Partners. "It should aim to strike a balance between generating enough growth to get retirees to the finish line while avoiding sharp drawdowns, which could negatively impact their standard of living."
Emily Harper, CFP, vice president and partner at Monument Wealth Management, talks about the importance of carefully managing post-retirement income to prevent prematurely running out of savings.
"Instead of having a fixed paycheck that covers your needs while you are working," says Harper, "retirees face the challenge of relying on multiple sources of income — sources that are often variable."
Key considerations for post-retirement investing
Some of the key considerations that go into developing a post-retirement investing plan include:
Cash flow: Understand how you will spend your money during retirement and the required cash flow. By understanding your predicted expenses, you can create a foolproof budget that factors in inflation and the rising cost of healthcare. Budgets should be reviewed and adjusted regularly.
Flexibility: It's impossible to predict your retirement spending needs with 100% certainty. A post-retirement investing plan needs to account for this variability by allowing you to be flexible in the size and timing of your withdrawals, Harper says. This will also let you maintain some control over your post-retirement tax bill.
Liquidity: You need a portfolio with sufficient liquidity to access the cash you need when you need it. You can do this through fixed-income investments or periodically raising cash by selling appreciated equity investments.
Volatility management: Portfolio volatility is a bigger concern when investing in retirement. Retirees don't have the time to recover from negative investments. Therefore, managing volatility in your portfolio and avoiding highly volatile, risky investments is not advised.
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