Investing when you’re in your 60s and beyond can be a whole new ballgame. Here are some pointers from Money Talks News and other sources.
INVESTING IN YOUR SIXTIES
1. Know your annual expenses
Spend several months tracking daily expenses (you can use a notebook or spreadsheet). This should help you begin to see where your money is going and give you a picture of how much you will need to withdraw on a yearly basis.
2. Fully fund emergency savings
Keep a cushion of savings in cash or short-term CDs so you can ride out market downturns without selling stocks at low valuations.
3. Estimate how long your savings must last
If you’re a woman of 65, for example, social security statistics say you can, on average, expect to live to 86.6.
4. Plan your withdrawals
Have a system for regular cash withdrawals. One popular withdrawal system suggests withdrawing 4% of your initial savings balance each year, then adjusting that amount annually for inflation. William Bengen, inventor of the 4% rule, feels that savings split equally between stocks and bonds should last at least 30 years.
5. Seek safety
Intelligent risk is necessary with part of your investments if you don’t want inflation to erode your investment portfolio’s value. How much money you keep in CDs, bonds and high-yield saving accounts depends, in part, on how much safety you need to feel comfortable.
You can see the results of different asset allocations at Vanguard’s portfolio allocation models showing the performance of various stock-bond mixes, since 1926.
6. But don’t forget growth
Unless you have so much money that you don’t need to worry about inflation, you’ll need some growth investments. That means stock mutual funds, especially low-cost, total stock market index funds. If you have a well-diversified portfolio with a sufficiently heavy equity exposure, you could see an average, long-term annual return of 6% to 8%.
7. Plan for required minimum distributions
When you turn 70.5, the IRS requires you to start taking minimum annual withdrawals from IRAs, 401(k)s, and other non-taxable accounts (into which you contributed funds before taxes). You will have to pay tax on this income.
8. Keep a lid on spending
Financial discipline is crucial to avoid the risk of outliving your money. Take a look at your spending, decide how much to withdraw annually from savings and investments, and stick to your plan.
9. Get professional help now and then
Periodically—at least once every three years—hire a Certified Financial Planner who charges a flat hourly fee to review your retirement plan, income and expenses. Consumer Reports has some information on how to shop for a financial adviser.
10. Rebalance your portfolio yearly
You’ve decided what proportion of your investments to allocate to various types of investments, but over time, your investments may perform differently than expected, throwing off your original allocation. Once a year you should adjust, or rebalance, your portfolio to return it to the original allocation balance.
11. Consider other sources of investment income
Two other investment possibilities are longevity insurance and annuities. Longevity insurance starts payouts when you reach a specified age—85, for example. If you buy a $50,000 longevity policy from MetLife, once you reach 85 you’ll start receiving annual payouts of $15,511, if you’re a woman (a man would get $15,862).
Annuities are financial contracts sold by insurance companies. There are several different annuity types. If you are interested in an annuity, it pays to get expert advice from an accredited financial adviser who charges a flat hourly fee—not from an annuity salesperson. (Caution: Some annuities carry a very high sales charge.)
This article has been reviewed by Richard E. Evans, former Investment Advisor. Author, Earn More, Sleep Better: The Index Fund Solution. Financial Editor, AskNelly.com.
For more information:
• moneytalksnews.com - Primary article source
• ssa.gov - Social Security statistics
• nytimes.com - NY Times article
• investopedia.com - Definition of total stock market index funds
• irs.gov - IRS minimum required distribution worksheet
• moneytalksnews.com - Ways of investing in the stock market
• consumerreports.org - Info on getting reliable financial planner
• moneytalksnews.com - Info about annuities