Investing during retirement

Why it’s important not to view your portfolio with an element of finality

Retirement is a major accomplishment for most people. You’ve worked hard all of your working life to save and prepare for your retirement, and now you’ve finally retired. So how should you approach investing now that you’re no longer earning a salary? When it comes to investing during retirement, with the right strategy, you can help make sure your retirement savings last.

It is not unusual for people to live more than 30 years in retirement, due to increased incentives to quit work early and rising life expectancy, which in itself can present a major risk that retirees may outlive their savings. The longer the time spent in retirement, the harder it becomes to be certain about the adequacy of your assets.

Retirement income boost
You’ve been investing for decades to earn enough money to retire, and the day has finally come that you can stop working. At this point, your investment risk profile and strategy will almost certainly need to adjust in order to look at ways of making your money work as hard as possible, but with a view to generating income to boost your retirement income.

This is a time to look at how balanced your investments are and whether you are exposed to more risk than you are comfortable with in certain areas. It’s time to conduct a review of all of your investments and decide how much you can afford to withdraw each year and whether this balances with your needs.

Too risk-averse
An elementary mistake that some retirees make is to view their portfolio with an element of finality – and this makes them too risk-averse and unwilling to look beyond their current financial position. Of course, retirement means different things to different people.

For some, it’s about never working again, and instead spending their days doing the things they enjoy most, such as travelling, pursuing hobbies, and spending more time with family and friends. For others, retirement means working part-time to stay busy and engaged in a profession, but without the need to earn a regular income.

Time of your life
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 you have retired and your working days are done. It goes without saying that once you have retired, you’ll want your retirement nest egg to last as long as possible. And with people living longer than ever, your nest egg may need to stretch further than you’d thought when you first started saving for retirement.

Potential investment options
For most 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. Given the potential investment options available to post-retirement retirees, at the point of investing, it’s really important to consider the effects of future financial market volatility and inflation.

While the risk of portfolio declines can’t be overlooked, retirees also face another type of risk: inflation. Even though we currently have historically low 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.

Keeping up with inflation
While many retirees should stay invested, they must make sure a good portion of their investments is 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, retirees 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, and 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 known as ‘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
The most careful plans and preparation 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 situation will protect you from the need to sell some of your riskier investments at a loss and cover you for a period of time if you are falling slightly short of your income generation target.

THE VALUE OF YOUR PENSION CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN HAS BEEN PAID IN.

EQUITY INVESTMENTS DO NOT
AFFORD THE SAME CAPITAL SECURITY AS DEPOSIT ACCOUNTS.