Even if you are fortunate enough to be able to retire from your job, you still need to know how to invest after retirement. Once you retire, your primary concern should be protecting the nest egg it took you so many years to accumulate. This may mean that you need to reallocate all or some of your investments, in order to lessen the portfolio risk.
- Determine the monthly income you need to maintain the lifestyle you want after retirement. Add up all of your income sources, such as a pension plan, Social Security and other investments that generate cash on a monthly basis. Your increased leisure expenses from retirement may more than be offset if you have a mortgage loan that will soon be paid for, or if you plan on downsizing to a smaller house. Make sure to allow for a potential increase in medical costs, when appropriate.
- You do not want to deplete your investment portfolio too quickly. You will need to have a general idea of your life expectancy, since your investments have to provide you with income for the rest of your life. Once you determine how long you think you will live, amend your portfolio as needed, to ensure that your funds last long enough. Make sure not to be too conservative in your estimation, or your money may not last as long as you need.
- Change the allocation of your portfolio to meet your needs after retirement. When you invest after retirement, you want to protect your assets since you no longer have a regular monthly income from your employer. You will need to determine how aggressive to be, in order to achieve your monthly income objective. Make sure to remember to account for inflation. And although it is not really a reallocation, if you sell your house and purchase a less expensive one, the surplus cash can then be invested to generate additional income.
- If you are uncertain how you should invest after retirement, you may want to hire a professional. When you meet with a financial planner or other investment specialist, make sure to be as specific as possible when describing the income you require after retirement. They will be able to design a portfolio that best suits your needs. The fees you incur will be well worth paying, if the retirement professional can help create a stream of income that lasts you the rest of your life.