The life expectancy continues to increase as seniors have more access to skilled nursing facilities and excellent healthcare services. As a result, seniors live for decades after retirement. Therefore, finding a way to fund your desired retirement lifestyle is important. If you want to live in the best apartments for seniors once you retire and want to enjoy all that retirement has to offer, you have to ensure that you can afford your lifestyle. For a healthy retirement lifestyle, you also need enough money to buy nutritious food, travel to see the world, and have access to the best senior living care facilities whenever the need for them arises. How can seniors fund their retirement lifestyle without outliving their money? The best option is finding appropriate investment strategies that work best for seniors.
There are various investment strategies that are suitable for those already in retirement. It is also important to note that some of the investment strategies that work best for younger adults who are still working might not be suitable for seniors. Therefore, seniors need to seek the best advice from financial advisors who understand the needs of the seniors when it comes to investing after retirement. In this article, we share 15 investment strategies after retirement. We will feature the investment alternatives that best suit seniors once they have started their retirement – strategies that will ensure that seniors have enough money to enjoy a comfortable retirement throughout their golden years.
- Real Estate Investment Trusts (REITs)
Investing in properties has become one of the best investment strategies of the 21st century. This is a high return low-risk investment strategy that suits seniors well. The real estate investment trust will put your money into mortgages and also in direct equity positions in various properties. As an investor in the real estate investment trusts, you will earn dividends. The advantage of real estate investment trusts is that they will pay a higher dividend compared to what the general stock market offers. In addition, seniors might not be able to hold on to the stock market decline that occurs in some cases. The real estate investment trusts aren’t likely to go down compared to the stock markets. REITs offer retired seniors a lower risk compared to the stock market. This investment strategy is a pretty safe bet and can be an excellent way for older adults to invest after they retire.
- Purchase Shares at Senior Citizens Saving Schemes (SCSS)
Another first choice investment strategy for the seniors is the Senior Citizen Saving Scheme. This is a must-have investment portfolio for seniors which is only available for senior citizens. This option is available to seniors above the age of 60 and therefore early retirees can also invest in these schemes. The Senior Citizens Saving schemes operate on a fixed year tenure and can be extended after the funds have matured. The SCSS pay a high dividend and these dividends are payable quarterly and are taxable fully.
- Mutual Funds
There are several factors to consider before choosing an investment strategy for the retirees. One of the factors is the income need and searching for options that offer an income becomes necessary. If you choose to invest in mutual funds, this is one of the investment strategies that can keep pace with inflation. This is a fund that provides you with a total rate of return with a high probability of your money lasting longer.
There are mutual funds that are categorized as retirement income funds and in other terms referred to as income replacement funds. These are designed to cater to the needs of the retirees. They have a fundamental objective that balances preservation of assets, income, and growth. Good examples of retirement income funds include the Vanguard Managed Payout Distribution Focus Fund Investor Shares.
- Dividend-Paying Stock Mutual Funds
With the dividend-paying stock mutual funds, income is generated by more than just fixed income bonds and the bond funds. This is a smart retirement portfolio as the dividends that are paid out are received as a source of income. This income can be used to fund different needs in your retirement years. However, the dividends paid from stock mutual funds might not be high enough to fund all the needs.
- Purchase Immediate Annuities
The immediate annuity schemes that are sold by insurance companies are a good investment strategy for those in retirement. Immediate annuities remain entirely taxable. However, before investing in immediate annuities, note that the amount used to purchase the annuity is non-returnable. Immediate annuities offer 7 to 10 pension options that include a pension for the lifetime for oneself after death to the spouse and after that to the heirs. You can choose the term of an annuity such as a 10-year payout, a joint life payout for those living with their spouse or even a single life payout. Immediate annuities offer a good alternative for those looking for guaranteed income.
- Buying Bonds
By buying bonds, you have loaned your money to the government, a corporation or even a municipality. The borrowing entity agrees to pay you some interests for the set amount of time and the principal is returned to you after maturity. The amount received as interest from a bond is a steady income for those on retirement. There are short-term bonds, mid-term bonds, and long-term bonds. Another type of bond is the floating rate bonds and the high-yield bonds. These pay higher coupon rate but have a low-quality rating. In retirement, the individual bonds can be used to form a bond ladder with maturity dates set to match your future cash flow needs.
- Rental Real Estate
A good retirement investment strategy is the rental of real estate. You build apartments and rent them out for monthly rental income. This is a capital-intensive investment, and you require having a stable maintenance plan before you start renting out the properties. You can choose to buy rental properties or you can build apartments and rent them out. Remember that the investment property is a business and is a great retirement investment. This is for those who want to put their time and money into the rental properties. Ensure that you talk to a real estate expert before you start with real estate investments.
- A Variable Annuity with Lifetime Income Rider
The valuable annuity is different from the immediate annuity. For the variable annuity, your money is put into a portfolio of investments as per your preferences. Therefore, you participate in the gains and the losses of such a portfolio. Before you get into a variable annuity, thoughtful planning should be done so as to determine the risk involved. In some instances, you might be forced to insure some of your income.
- Invest in Income Producing Closed-End Funds
These are designed to produce monthly or quarterly income for the investor. The income comes from interest, dividend payout, and covered calls and in some cases from a return of the principal amount. Closed-end funds use leverage and hence will payout a high yield. The principal value of all closed-end funds is quite volatile. Therefore the experienced investors may find the closed-end funds to be an appropriate investment of their retirement funds. The less experienced investors should avoid them and use a portfolio manager who has experience in closed-end funds.
- Peer to Peer Lending
Commonly referred to as P2P, peer to peer lending takes place online through platforms that match lenders to borrowers. In this case, the lender is the investor and he or she earns interest on money they lend to the borrowers. In this case, you are lending without using the bank as an intermediary. The P2P investments earn a huge interest rate which is higher than what one gets from the stock market depending on negotiations skill. However, the peer to peer lending plans is considered a high-risk investment and the risk levels vary depending on who you lend to. Therefore, this is an investment strategy that needs careful analysis before one puts their monies into it.
- The Treasury Inflation Protected Securities
These are better referred to as TIPS and are another form of U.S Treasury Debt. However, these are different from the ordinary treasury securities because they pay interest and additional principal so as to compensate for inflation. Treasury Inflation Protected Securities comes in various denominations and in terms of five years, ten and thirty years. The annual inflation adjustment is usually based on the changes in the consumer price index. Therefore, the percentage change in the value of security is added to the principal value rather than paid as interest. On maturity, the investor is paid a higher value that is based on the CPI. In case of deflation, the principal amount might also reduce.
The Inflation adjustment causes the Treasury inflation-protected securities to pay lower interest rates than the other U.S. Treasury securities. Irrespective of the low interest, the inflation adjustment also produces more attractive results for the investor. Just like in the same way seniors purchase treasury securities, TIPS can be purchased and held through Treasury Direct.
- Share Market Investments
Senior citizens who have the knowledge of share market can invest directly in shares or trade in shares on a daily basis. By trading in shares, seniors can earn a good income daily to support their daily needs. the share market helps in keeping seniors active and engaged. In some days, the share market might not have very good returns. For this reason, it is advisable that if you are getting into share trading, you invest only if you have enough knowledge of how to share market works.
Alternatively, seniors can hire experienced stock market brokers to help in share market trading. The share market consultant will help you invest in high return shares and advise you when it is the best time to opt out. This will help in ensuring the senior citizen who is interested in share market trading doesn’t lose money trading in stocks. On the other side, the seniors are able to maximize share market profitability.
- The Equity Linked Savings Scheme
Equity-linked saving schemes give excellent return if the right kind of investment portfolio is chosen. Though the ELSS is not senior citizen-centric, it is a good savings plan that can give excellent returns anyway. It comes with ample tax benefits and the long-term capital gains aren’t applicable on sale of these funds. In addition, there is no tax on dividends and therefore the seniors get the full amount of dividends. However, with the ELSS, you cannot make any withdrawals until the lock-in period comes to an end.
- The Fixed Deposits
Seniors can choose to have their monies in a fixed account that pays a high-interest rate. This is ideal for the less active seniors. Therefore, if you are no longer able to run with the other options, the fixed account might be your last option. The annual interest can be used to fund some of your needs. The main challenge with the fixed deposits is that you will earn a small interest on the amounts saved in the fixed account. In addition, you will have to incur bank charges to keep your account operational. Lastly, fixed deposit interests attract taxation.
- Total Return Portfolio
Finally, the total return portfolio is one of the best retirement investment strategies for seniors. The total return portfolio is not a stand-alone investment but uses a balanced and diversified approach. Ideally, the monies invested will be spread in stock and bond index funds to provide retirement income in the form of interest, dividends, and capital gains. The total return portfolio is designed such that it can achieve a respectable long-term rate of return for the investor. Unlike a certificate deposit, the total return portfolio investor cannot figure out the annual returns for this investment.
16. Reverse Mortgage Loan
When you retire, the expectation is that you will get to enjoy your golden years in comfort, but if you do not have enough money the reality can be quite different. To combat the drop in income that comes with retirement, consider taking out a reverse mortgage on your home. A regular home mortgage requires you to pay it back in set amounts over a period of time, but a reverse loan actually pays you in set amounts over time, unless you ask for a single large payment. First, a reverse mortgage calculator is used to determine the exact amount of equity you can borrow. Then the payments are given to you in installments, usually monthly, unless you requires a line of credit or one large payment. It is a long-term agreement, so you do not have to pay anything back right away. The full balance will only be owed if your house ever stops being your main residence.
Senior citizens need an income generating investment that guarantees them some income while they are enjoying their retirement. It is important to do your research to ensure the chosen investment will pay a modest income. It is always advisable to consult an investments expert for professional advice.
Author Bio: Holly Klamer is a connector with Senior Guidance that help provides comprehensive resources on various senior living options. She loves working in the ever-changing world of digital and is fascinated by the role content plays in today’s marketing.