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5 Rules of Investing after Retirement

October 10, 2022

5 Rules of Investing after Retirement

Many rules of investing have been around for over 40 years, such as the 60/40 rule. The investing landscape has changed dramatically since then. Anyone planning for retirement today may struggle to figure out which rules to follow to reduce risk and build a nest egg for the future at the same time. In a recent interview, Thomas O’Connell from International Financial outlined 5 rules of investing you should pay attention to. Watch the video here, or keep reading to learn more about the 5 rules of investing.

1.      Watch Out for Inflation

Inflation has gone through the roof lately, and you probably notice it daily. You’re paying more for groceries, but you also pay more for household items, cars, and gas. The rise in prices is concerning for many reasons, not the least of which is your retirement. Inflation is like a silent tax that erodes your spending abilities. That’s why it’s so important to make sure your investments keep up with and outpace inflation.

2.      Break Your Retirement into “Buckets”

You don’t necessarily need a huge amount of money on the day you retire. Instead, you need a regular income stream(s) for the years after you stop working. The concept of buckets makes it easier for retirees to plan for the distribution of income. For example, you can have a bucket that’s designated to provide for you for the first 3 years of retirement. The next bucket of investments will get you from year 4 to 7. While you’re using the first bucket, all the other buckets are still intact and continue to increase in value. Envision a bucket brigade, one bucket refills the next.

3.      Forget the 60/40 Rule

This rule is directly related to the first rule. The 60/40 rule was put in place when bonds easily outpaced inflation. Investing 40% of your assets in stocks today would mean you’re guaranteed to lose money on 40% of your investments. Unfortunately, the interest rates on treasure bonds are at an all-time low, several percentages below the rate of inflation. To outpace inflation, your portfolio must primarily contain stocks, which increases your risk and lowers your probability of success.

4.      Consider Annuities

Annuities serve a valuable purpose in providing income during your retirement years. A fixed annuity allows you to plan your financial needs and know how much money you’ll receive every month. It replaces your fixed paycheck and makes it easy to plan for the future. In terms of guaranteed income, there’s no other investment product that works like an annuity.

5.      Consider Real Assets for Diversification

With the volatility of the stock market, many financial experts recommend diversifying with real assets that are not tied to the performance of the stock market. For example, you can invest in gold, silver, structure notes, or real estate. Investing outside of the stock market still requires you to be careful and work with a financial professional, but it can help you mitigate some of the risk the volatility of the stock market brings.

These 5 rules of investing can serve as a starting point for your retirement planning, even when you’re working with a financial advisor. Contact International Financial Advisory now to start planning for your retirement.