Why Retirees Should Not Stop Investing During Retirement

The rules may seem unclear when it comes to investing after retirement. As your risk appetite drops and you stop drawing a monthly salary, you may wonder if you should use your savings to invest more or stop investing altogether. Factors like inflation and the inability to cover basic needs on a limited nest egg can seem overwhelming. However, investing after retirement can have many benefits, including being able to beat inflation and keeping your nest egg growing to accommodate your future needs.

A financial advisor can help you understand how to invest your money after retirement. This article will also cover some reasons not to stop investing after retiring and how you can invest in your golden years.

Below are some reasons why you should continue to invest your money during retirement:

1. Investing helps beat inflation

Investing is crucial to beating inflation, especially as you approach retirement and beyond. Even in your 60s, retirement marks the beginning of a potentially long investment horizon, which can possibly range up to 30 years or more. Such a long timeframe allows your money ample opportunity to grow in the market and helps to safeguard it against the implications of inflation over time.

With a fixed nest egg, it can be challenging to keep up with rising costs over several decades. Investing at such a time is essential as it offers the potential for your savings to grow faster than inflation, ensuring you can sustain your lifestyle despite increasing prices. Investing not only helps you beat inflation but also prepares you for unexpected expenses, particularly in healthcare. Medical inflation can be significant, making healthcare costs one of the highest expenses in retirement. Investing wisely helps you build a financial cushion that ensures you can afford essential healthcare services without compromising your overall financial security.

Diversifying your investment after retirement across different asset classes is key to inflation protection in retirement. Stocks, for instance, have historically provided higher returns over the long term compared to inflation. Investing in stocks can help you safeguard your future needs. However, since they are risky, it is advised not to rely solely on them and include relatively stable options in your portfolio, such as bonds. Bonds like Treasury Inflation-Protected Securities (TIPS) can be a suitable option to beat inflation. These government-backed bonds adjust their interest rates with inflation and shield your investment from losing value due to rising prices.

2. Investing increases your income sources

In retirement, your income sources are typically limited. You may primarily rely on your pension, savings, and Social Security benefits. While these options provide you with a financial foundation, they can be restrictive and often result in a fixed income that puts a strain on your finances. Living on a fixed income may force you to compromise on your lifestyle, limit your expenses, and adopt a more frugal way of living. Investing can help you create another source of income, reduce these pressures, and enhance your financial stability. One common strategy retirees use is the 4% rule for withdrawals. This rule suggests that you can withdraw 4% of your savings in the first year and then adjust future withdrawals for inflation. While this strategy can be effective, it may fall short if your savings are limited or if you withdraw more than 4%. Over time, this could lead to diminishing savings, increasing the risk of running out of money in retirement. Investing, however, can offer additional income sources to supplement your withdrawals and provide more financial security.

While you may not be able to invest in a 401k after retirement, as the contributions can only be paid out of your payroll, there are alternatives to employer-sponsored investments. Bonds are an excellent option for generating regular income. Investing in bonds can create a steady stream of interest payments, which can be especially useful for covering regular expenses. They carry low risk, which makes them ideal for retirees. Moreover, there are many options to choose from, such as corporate, municipal and government bonds. You can select any of these options based on your goals. Stocks, especially those that pay dividends, are another excellent option for increasing your income in retirement. Dividend-paying stocks provide regular income in addition to the potential for capital appreciation. This means that not only can your investment grow over time, but it can also generate a steady income stream. You can consider investing in dividend stocks from well-established companies with a history of paying consistent dividends to add a layer of reliability to your income sources in retirement.

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3. Investing lowers stress and eliminates the fear of outliving your savings

Investing after retirement lowers stress and the fear of outliving your savings. When you have limited savings, you are always on the lookout for ways to save more, constantly fearing that you might run out of money unexpectedly. This fear can lead to forced frugality, where you might save more and spend less even when you do not have to. Over time, living under constant stress and having to curtail your needs can also make you feel depressed. Retirement should be a time to enjoy your life. If you are happy pursuing your personal goals, you are more likely to be healthy. On the other hand, being unhappy can lead to health issues that can increase your expenditure.

When you have more income sources, you can withdraw more. Investing allows you to withdraw more of your savings each month, increasing your financial capacity and offering you money to tackle not only your essential needs but also your wants. You can travel more, socialize more, and pursue hobbies that may not be traditionally essential but can do wonders for your overall peace of mind and health. Having diverse sources of income through investments means you do not have to constantly worry about running out of money. This security allows you to enjoy your retirement, pursue your passions, and spend time with loved ones without the constant anxiety of financial instability. When you are financially secure, you are more likely to indulge in activities that bring joy and fulfillment and enhance your quality of life.

Moreover, investing helps you plan for the unexpected. With a well-rounded investment portfolio, you have the financial cushion to handle unforeseen expenses, such as medical emergencies, house repairs, travel costs, or even legal costs such as parking tickets, etc. This preparedness brings peace of mind, knowing that you can face any financial challenge that comes your way without compromising your lifestyle. Investing also provides the freedom to make choices. You have the flexibility to make decisions that align with your desires. Apart from your basic expenses, you can also consider spending money on causes close to your heart and contributing to society. Despite being retired, you can support charitable causes, help your children or grandchildren, contribute to your community, and more.

4. Investing makes you financially independent

Investing makes you financially independent. When you invest in retirement, you achieve a level of financial independence that ensures you can maintain your lifestyle and fulfill your needs without relying on others. The beginning years of retirement are usually self-sufficient for retirees with adequate money to meet their goals and needs. However, the final years can be tricky. Many factors determine how your financial security will look in the later years of retirement.

As highlighted above, one critical factor is inflation, which can erode your savings over time. What seems like a substantial nest egg today might not be enough to cover your expenses in the future. Investing wisely helps you maintain a strong financial foothold throughout your retirement. Additionally, having a well-diversified investment portfolio allows you to cater to your planned and unplanned needs until the end of your life. You have enough funds to always be financially independent, ensuring that you do not have to rely on family members or friends for financial help. This independence is crucial for maintaining your dignity and self-respect.

Financial independence also allows you to make more conscious decisions about your long-term care needs. For instance, decisions like choosing to stay in a nursing home, deciding the location of the retirement home, or preferring to live at your house with hired nursing help, etc., can be choices you make for yourself if you are financially independent. Without this independence, these critical choices might be made by others and can potentially lead to outcomes that do not align with your preferences.

Moreover, financial independence offers you autonomy and power. You do not have to live according to others’ expectations but can make your own choices. This autonomy extends to various aspects of your life, from daily living arrangements to larger financial decisions. With adequate financial independence, you can decide how to spend your money, what kind of lifestyle you want to lead, and how to plan for future needs. This sense of control over your life can be empowering and contribute significantly to your overall well-being and happiness.

5. Investing allows you to leave a legacy behind

Investing after retirement allows you to leave a legacy behind. If you are financially independent through investing, you are not only securing your own future but also able to help others around you and leave a lasting legacy for your loved ones. If you have children or grandchildren, investing can provide you with the financial means to support their education expenses, like tuition fees, books, or other costs.

In addition to education, you can also invest in family businesses and support your loved ones in their career endeavors. If your loved ones are struggling with debt, you can come to their rescue with financial assistance. While it is not advisable to prioritize your loved ones’ financial security over your own, having excess funds from smart investments allows you to step in and provide assistance when needed. This can be particularly important in times of financial crisis, where your support can help your loved ones get back on their feet.

Moreover, investing allows you to have the financial flexibility to help others without compromising your own security. This means that while you can provide for your loved ones, you are still ensuring that your needs and future are well taken care of. By maintaining this balance, you can offer support without jeopardizing your financial independence.

To conclude

Investing in retirement can add to your financial security and help you be independent. It helps tackle inflation and ensure your basic needs as well as wants are met. Investing can improve your quality of life and allow you to be at peace without financial stress. However, factoring in your changing risk appetite and creating an investment strategy that caters to your retirement goals is important.

Use WiserAdvisor’s free advisor match tool to get matched with experienced financial advisors who can guide you on how to invest after retirement. Answer a few simple questions and get matched with 2 to 3 vetted financial advisors based on your requirements.

For additional information on retirement planning strategies that can be tailored to your specific financial needs and goals, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.