What to Know About Investment After Retirement
6 Min Read | Published: October 3, 2024
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Having multiple income streams in retirement is important. See key considerations and strategies that could help you to invest after retirement.
At-A-Glance
- Social Security benefit payments were intended to supplement your retirement income, not to be an all-encompassing solution.
- Retirement investing is a balance between minimizing risk and maximizing income. The investor’s risk tolerance will help to determine that balance.
- Consider enlisting the help of a financial advisor for a professionally-constructed investment portfolio.
Retirement is not the end of investing. In fact, investing after retirement can be a good way to help increase your income during your golden years. With inflation continuing to rise, it’s a good idea to have multiple sources of income to help combat increasing costs. In this article, we’ll look at some options to help you invest after retirement, along with strategies to optimize your current accounts to create retirement income.
Investments You May Want to Consider After Retirement
According to the Social Security Administration, Social Security was never intended to be the only source of income during retirement.1 Instead, it is meant to supplement your retirement income.
Retirees can also create income by investing in products with potential returns. Some investment options that are sometimes used for income in retirement are listed below:
- Annuities
Annuities are financial products that provide a stream of income. They are usually bought by retirees. They can provide predictable income, and people who invest in annuities cannot outlive their income stream.2
- Bonds
Bonds are considered to be relatively safe investments that yield a small return. Common examples are U.S. Treasury bonds, municipal bonds, or corporate bonds.
- CDs
A certificate of deposit (CD) can pay a fixed or variable interest rate. With CDs, you typically invest a set amount of money for a fixed period of time and earn interest over that period. This is typically three to five years. Once the time is up, you can cash out, and access your money, along with any interest earned.
- HYSA
High-yield savings accounts are a good way to create safe, passive income, and typically allow you to earn more for your savings than you would with a traditional savings account. The interest rate could be fixed or may vary over time.
- Dividend Stocks
Dividend stocks are shares in a company that pays a regular dividend to its shareholders based on the company’s financial performance.
Carefully consider each of these before investing after retirement. Even seemingly “safe” investments can carry risks. Consult a financial advisor if you have questions. Your income is typically lower in retirement, so learn to be cautious when you need to be. Taking risks when you don’t have an employment income could reduce your retirement nest egg.
Investing After Retirement: Important Considerations
Your retirement goals will typically center around minimizing risk and maximizing your retirement income. There are several ways to do that. The list below covers strategies that can be used but remember to research any investment strategy thoroughly first to ensure you are aware of the risks, and to make sure it’s right for you.
- Diversify
Diversify across different investment vehicles to balance risk and return. A common example of this in pre-retirement investing is a 60/40 portfolio with 60% stocks and 40% bonds. Retirees can rebalance that to be 50/50 or even 40/60 to lower risk. You could also go the other way, taking on more risk for higher returns.
- Consider a Conservative Approach
Certain investments, such as bonds and dividend-paying stocks, are more conservative than others. Use that knowledge to configure the investment mix to match your risk tolerance. A more conservative approach minimizes risk and creates a more fixed income. Aggressive investing, on the other hand, carries more risk.
- Consult With a Financial Advisor
Consider reaching out to a financial advisor to have your portfolio constructed by a professional. Just make sure you do your research first. You’ll also want to consider working with a fiduciary financial advisor, as these advisors are committed to putting their client’s best interests before their own.
- Consider the Tax Implications
Evaluate the tax implications of different investment strategies. That includes cashing out your retirement savings or converting a 401(k) to a Roth Individual Retirement Account (IRA).3 Selling individual stocks and bonds may incur a tax liability. It’s wise to speak with an accountant if you have questions.
- Keep an Emergency Fund
Maintain a cash reserve or emergency fund to cover unexpected expenses. A high-interest savings account is a good way to do this. You can also use a money market account, CD, or certain mutual funds. You’ll want to look for an investment that’s liquid enough to give you immediate access to your funds should you need them.
- Stay Informed
Regulatory agencies like the Securities and Exchange Commission (SEC) and U.S. Treasury frequently change the rules about investing. The Federal Reserve Bank also influences this space because it sets interest rates. Stay informed about actions from these entities and other economic or regulatory changes that may impact your investments.
Frequently Asked Questions
According to the Social Security Administration, the amount of your average earnings that Social Security will replace will depend on your earnings and when you choose to start benefits. If you start retirement as your “full retirement age,” then this percentage may range from around 78% for very low earners, to around 42% for medium earners, to around 28% for maximum earners.4 You can supplement your Social Security Retirement benefit with a pension or 401(k) and additional savings or investments.
Sequence-of-return risk is the risk that the stock market will dip shortly after you retire, which may result in the need to sell more of your stock to maintain a retirement income.5 This could result in an early loss of retirement savings and a shorter retirement income period.
Counting investment returns, the 4% rule suggests that you can withdraw up to 4% of your total retirement savings each year for 30 years before insolvency.6 However, this is a broad guideline and may not be right for every situation.
The Takeaway
Retirement isn’t the end of active income streams. Your investments after retirement can generate additional income if you optimize and balance your portfolio. You’ll also want to reevaluate your risk tolerance and shift funds to more conservative investments if necessary. Consider working with a financial advisor if you have questions and stay informed about government regulations or economic circumstances affecting your retirement investments.
1,4 “Understanding the Benefits,” Social Security Administration
2 “Guide to Annuities: What They Are, Types, and How They Work,” Investopedia
3 “Roth IRA Conversion Rules,” Investopedia
5 “10 Strategies for Investing After Retirement,” U.S. News and World Report
6 “Managing Your Money After You Retire,” Investopedia
Kevin D. Flynn is a financial services provider, business coach, and financial writer. He lives in Leominster, Massachusetts, with his wife Evelyn, two cats, and ten wonderful grandchildren.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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