In financial downturns everyone has a tendency to tighten their own budgets and that includes retired people. Individuals observe they are all of a sudden saving money. In the 2009 economic downturn, the US financial savings rate jumped to 6% when it has been near 0% in the several years prior. Actually you might find you're actually end up with retirement savings after paying your normal expenses. So where's the best place put this 'extra' retirement money as a retired person?
You may tend to just place the extra retirement money in a bank account. Plaese don;t do that as you will only earn 1%. That makes your cash vulnerable to inflation and not able to participate in economic upturns. Its earnings will also be taxed yearly and after inflation - you might as well place these extra retirement money under the bed.
Presuming that you've stashed anywhere from one to two years of easy-to-access unexpected emergency cash, you should put your 'extra' retirement money into investments of a longer time horizon. Here, you are searching for equity growth - both to counteract the consequences of inflation and further capitalize on the eventual rebound of the economic climate and the stock market.
Better to make this retirement money work to ensure much more for you later on. At age 65 you statistically have 21 years of remaining life-span. Before that time elapses, both inflation and economic fluctuaitions (which includes upturns) will have an effect on your holdings.
Note that if the stock market simply makes you too nervous, then consider index-linked CDs or indexed annuities. Both of these alternatives protect your capital but give you some chance to get a respectable return.
Make sure to diversify your retirement money among a range of industries. Or maybe, if you want to invest in individual shares, the Dow Dividend Strategy is a great strategy for conservative investors. (Although the shares in this plan are generally considered U.S. companies, they derive 50% of their revenue outside the US thereby offering immediate international coverage). Although you might invest some of your extra retirement money in mutual funds or ETFs that cater to large capitalization shares, you should try to include real estate investments, international shares, emerging markets, and smaller U.S. shares.
These investments will reside in your 'taxable' accounts because they come from investment earnings and savings rather than income eraned through employment (e.g. 401k or IRA). And as equity-based investments, their yearly income might be little, because you're investing for increase in principal. They might not 'move' for some time, but remember, you have previously proven you do not require this money as it is retirement money you did not have in your original plan--it was extra savings.
Think about this money apart from regular portfolio organized in accordance to your 'risk' profile and earnings requirements. By doing this you are able to afford to risk the 'wait' required for this retirement money to bloom.
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Thank you for the interesting post. I will get my Retirement soon from eurpe and after I move to the US, I need a good plan of how to put the money.
hi, such a nice information. Make sure to diversify your retirement money among a range of industries. I need a high-quality graph of how to place the money. Thanks you for this post.