Since retired people can no longer earn a regular income, they have to make their retirement funds earn an income for them. The most important thing for seniors is to keep tax liabilities to the minimum while creating a steady stream of income. Their goal is to make their retirement funds last as long as they live.
The following 5 investment tips can help senior citizens generate a regular income from their retirement savings.
Tip #1: Investment Options for Seniors
If you are a senior citizen with conservative investing habits and are looking for low-risk investment options, here are a few ideas for you:
- Real Estate Based Partnerships:Seniors who have never invested before and just don’t trust the markets can consider investing in a real estate-based partnership, which usually has a group of 20 – 30 people investing in commercial real estate. But before investing, you have to research the developer really well. Approach a local real estate lawyer and enquire for partnerships or deals that involve investment in stable commercial properties.
- Stocks and Exchange Traded Funds (ETFs):If you are interested in investing in bonds, you could consider ETFs. Choose ETFs with a huge base of assets and low fees. You would also prefer a balanced mutual fund, in which 20 – 40 percent of the company funds are in the form of assets and the rest are in the form of bonds. Adding stocks to your investment portfolio is essential despite their short-term volatility because stocks deliver returns capable of beating inflation.
- Immediate Annuity:If you have just retired, you could add an immediate annuity into your portfolio. When you do so, the insurance company into which you have invested promises to repay it with interest. While a lifetime annuity does not help you deal with inflation, it definitely delivers higher returns.
- Corporate Bonds:Investing in corporate bonds is riskier than investing in government bonds, but definitely not as risky as investing in stocks. If investing in stocks is too stressful for you, consider investing in a high-liquidity corporate bond to get a steady stream of income.
Tip #2: Hire an Investment Expert
If you are totally new to investing or trading on Forex markets, you ought to hire an investment expert or a financial advisor. But make sure that the advisor or expert is registered, licensed, and reputed.
You can also be your own financial advisor, but for this, you have to invest a great deal of time and effort in study and research. Fortunately, you will find plenty of free resources online that give you all the required information.
Tip #3: Asset Allocation is Important
The risk level associated with various financial instruments varies. When you were young, you might have been an aggressive investor. As a senior, developing a conservative approach is advisable. The idea is to create a diverse, but uncomplicated portfolio. Be wary of investments that promise high rewards because they are sure to involve a lot of risk.
You should also take into consideration the cost factor. Almost all types of investments, including mutual funds, stocks & bonds, and retirement plans, are associated with commissions and fees. Make sure that your portfolio doesn’t have investments with high fees or commissions that could eat away your earnings.
Tip #4: Senior Citizens Saving Accounts and Fixed Deposits (FD)
FDs for senior citizens have a higher rate of interest than the regular FDs. You can invest your money in an FD for anywhere between 12 and 60 months depending on your requirements. FDs are not only safe and secure, but also help you grow your savings considerably. They are highly liquid and you can withdraw your money whenever you wish.
You also have the option of choosing between a non-cumulative and a cumulative FD, depending on your requirements. While the former delivers quarterly or monthly payouts, the latter delivers compound interest at the time of maturity. Senior citizens usually go in for non-cumulative FDs for the monthly, quarterly, or half-yearly income they deliver.
Senior citizens’ savings accounts also yield a higher rate of interest than the regular accounts. At the same time, they also come with limitations. These accounts expire in five years and can be renewed for a further three years only once.
Tip #5: Money Market Accounts
A money market account comprises multiple low-risk investments such as treasury bonds, CDs, and savings accounts. It gives you higher returns than a regular savings account, but also requires you to maintain a higher minimum amount.
You can withdraw your money whenever you wish and even write checks against your account. But the number of withdrawals per month is limited to six. The biggest advantage is that the funds in your money market account are insured.
Conclusion
Early retirees and senior citizens usually prefer investing in low-risk financial instruments. They stay away from aggressive trading strategies because of the high risks involved with such trading. Financial markets are cyclical in nature and take years to recover after a recession.
Unlike the young, the aged have no time to wait for the markets to recover. So they prefer sticking to low-risk investment plans such as bonds that deliver fixed returns and companies that promise reliable dividends.
The young, on the contrary, not only have the time, but also energy and steady income. They can afford to be aggressive investors and take more risks. But later in life, they must invest their returns on low-risk financial instruments for added security and definite returns.
At the same time, you don’t have to stick to low-risk investment plans just because you are senior citizen. Your investment strategy depends a lot on the wealth you have already created, the risk you are ready to take, the losses you are capable of handling, and your knowledge of the market.
Create a set of clear and achievable goals, generate an investment strategy depending on your personal requirements and abilities, and maintain a portfolio of high, low, and medium risk investments. This will help to not only protect your capital, but also get the required returns to lead a secure and comfortable retired life.