The 15 Most Important Investment Changes for Retirees

A lot of things change very quickly when you retire, and your investing strategy is no different.

Your mindset, asset allocation, and time horizon all have to turn on a dime, making navigating your finances during retirement a challenge if you want a stress-free retirement .

Here are a few adjustments you’ll need to make to your investments once you stop working to hedge against economic and personal downturns.

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1. Shift goals from growth to preservation

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When you were working, your main goal was to grow your nest egg to provide for your needs after retirement. Now that retirement is here, your objective transitions from increasing your wealth to keeping it.

This mindset shift can be difficult to navigate, but it’s crucial to maintaining the appropriate level of risk.

Conservative investments like bonds don’t return as much as higher-risk stocks do, but recovering from market downturns is more difficult when your portfolio has a shorter timeline.

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2. Consider how much cash you need

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Remember that while you might see a few increases in spending during retirement (such as for health care), you’re likely to see more decreases as you’ll no longer have commuting or other work-related expenses.

You’ll also have more time to become a savvy shopper rather than relying on conveniences like takeout meals.

Take a long look at your budget and determine how much cash you need to withdraw from your portfolio to meet your needs.

3. Adjust calculations to factor in pensions and Social Security

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If you receive monthly pension or Social Security payments, you should plan your retirement investment withdrawals to account for them.

Your total income (including a certain amount of Social Security and pension money) will determine how much tax you pay, so balancing these sources of income can reduce your tax burden.

The amount you have available in pension payments and retirement funds may also influence when you take Social Security benefits.

4. Determine a safe withdrawal rate

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Before deciding how much cash to withdraw from your investments, determine your safe rate of withdrawal. This is the percentage of your portfolio you can withdraw per year without depleting the principal.

A famous Trinity University study put the safe withdrawal rate at around 4%. So, if you started with a nest egg of $1 million, you could (theoretically) safely withdraw $40,000 per year without eating into your original balance.

This assumes the portfolio is roughly 50/50 split between stocks and bonds and that the market will return around 7% annually, adjusted for inflation.

Some experts now say that the so-called “4% Rule” may be too simplistic and that safe withdrawals should be adjusted to reflect market conditions.

5. Diversify

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Now that your investment strategy has shifted to wealth preservation, diversification is more critical than ever.

If you’re heavily invested in a single asset class, your portfolio will have a harder time recovering than when you were in your working years because your time horizon is shorter.

Although you might want to shift your funds to more conservative investments, you can still spread that money over different, low-risk assets like bonds, real estate, gold, and other commodities.

6. Don’t abandon stocks

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You might be thinking, “If I need to go to conservative investments, why don’t I switch all my holdings to bonds? Or cash?” Contrary to what you might think, ditching stocks isn’t the best strategy after you retire.

Inflation still has ample time to eat into your nest egg, and keeping a sufficient portion of your stocks hedges against this economic force.

A common rule of thumb for determining the percentage of your portfolio that should be in equities is to subtract your age from 100.

7. Look for tax-efficient strategies

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Your taxes have the potential to look very different once you stop working. By educating yourself on strategies to minimize your tax burden, you can preserve more of your retirement funds for your own use rather than shipping them off to Uncle Sam.

These strategies include drawing from tax-deferred accounts in low-income years, making charitable contributions from your required minimum distributions (RMDs), or rolling over funds from an IRA to a health savings account (HSA).

Consult a tax professional for more information on when and how to use these tactics.

8. Choose the right time to retire

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It’s important to factor in timing when you choose to pull the plug on working. If you start dipping into your retirement savings when the market is in a significant downturn, you could hamper your nest egg permanently.

This is called a “negative sequence of returns,” when your withdrawals are compounded by a market contraction. The dent this makes in your retirement account is statistically difficult, if not impossible, for a conservative portfolio to recover from.

While you can’t control every facet of the economy — or even your own financial situation — doing your best to minimize your withdrawals during bear market years is an important, proactive step you can take to preserve your wealth.

9. Keep a cash emergency fund

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One way to avoid the negative sequence of returns described above is to withdraw money from your investments at strategic times and keep the cash in an easily accessible savings or other liquid account.

That way, you won’t be forced to sell your equities when the market is down to pay for a leaky roof or a necessary medical procedure.

As it does during working years, an emergency fund gives you financial flexibility and peace of mind while preparing for life’s mishaps.

10. Separate short-term reserves

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Short-term reserves are between a liquid emergency fund and retirement investments. These funds are in the bullpen — ready for deployment if need be — but still earning their keep in interest.

Reserves should be two to four years’ worth of living expenses, likely enough to outlast most recessions. Consider holding short-term reserves in fixed-income investments such as bonds or CDs.

11. Determine whether you need to add to your nest egg

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Even if you’ve quit your regular day job, you may not have saved enough to reach your retirement goals. In this case, it may be worth working a part-time job to contribute more to your retirement account or to pay your day-to-day expenses.

After age 50, you can contribute more to a 401(k) in catch-up contributions — up to $30,000 in 2023 or up to $30,500 in 2024.

12. Continue to adjust annually

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Retirement withdrawals aren’t a set-it-and-forget-it arrangement. It’s a good idea to reallocate your assets and assess your spending and savings annually.

This practice ensures that you don’t burn through your nest egg too quickly or save too much money for later years when you’re less able to enjoy it.

13. Reconsider your term life insurance

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Insurance isn’t necessarily an investment but a large part of your financial well-being. As you get older, you may reconsider whether or not life insurance is necessary.

If you’re no longer earning income and your savings are enough for your spouse (and dependents, such as a disabled adult child) to live on, you may want to let your term life insurance lapse and save on the premium.

However, life insurance also plays a vital role in helping your loved ones pay final expenses, so consider that if you choose to skip out on term life insurance.

14. Check for fees

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Minimizing fees is critical to optimizing your investments at any phase of life, and retirement is no different. Actively managed funds tend to have more fees than passive ones that mirror a benchmark, such as the S&P; 500.

If you choose to keep funds with high fees in your portfolio, calculate the long-term costs and ensure that the performance justifies the extra expense.

15. Consider downsizing your home

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Your primary residence is a real estate investment with ups and downs, just like your stock portfolio.

If you’ve been lucky enough to enjoy your home's recent pandemic-fueled double-digit appreciation, it might be worth selling to lock in your gains and downsize your home.

A smaller home will cost less in upkeep and taxes, so you can avoid wasting money on more house than you need during your golden years.

Bottom line

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By adopting these tactics, you can adjust your investments for an enjoyable, secure retirement.

Some of these processes, such as changing your mindset or downsizing your home, may take some time, so don’t feel like you need to figure everything out at once.

If you’d like professional advice, contact a fee-only financial advisor to weigh in on your investment plans and help you evaluate your financial fitness .

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