Retirement investing doesn’t stop when we actually retire! Throughout this special article series, we will cover simple, no-nonsense approaches to investing during the retirement years.
Disclaimer: We are not financial professionals, and this article is intended only to educate and inspire, not to provide specific advice about your specific personal financial situation (so don’t call the lawyers).
As you may have read about in Our Story, money is our biggest concern right now, and I’m guessing that it’s high on your list as well.
My Mom retired with zero savings, so she is living on her Social Security benefits and income from occasional part-time work. She’s the last person who could afford to invest, right? She basically has no money. True, but she’s also probably got a good 20+ years of retirement ahead of her. She can’t afford not to think about investing.
That’s why we are writing this special article series. We will explore what we have learned about how my Mom – and your aging parents, or you yourself – can simply, safely, and wisely invest whatever amount you can. Investing doesn’t have to involve huge sums of cash all at once, and knowing where to start makes a big difference.
First of all, “investing” is about the money you save (not the money for paying everyday expenses). Savings need to be kept somewhere, and as your savings grow, where you keep it becomes increasingly important. Here in Part 1, we’ll explore how to structure an investment portfolio (think of it as a group of baskets where you keep your savings) based on the needs of retirees, like my Mom.
Design a ‘Protective Portfolio’ (to Keep Your Savings Safe)
Right now, above all else, my Mom can’t afford to lose a single dollar of what she’s recently managed to save. Sound investing should not look like gambling, for anyone, especially not for retirees! You earned that money, so design what I like to call a “Protective Portfolio.” (A portfolio just refers to the various types of investments you hold.)
In a Protective Portfolio, your #1 goal is to conserve your principal. (Principal simply means the amount you saved and originally invested.) This is particularly important if your savings is still on the smaller side; later, as it grows, there is some wiggle-room. But, keeping your savings intact is critical.
In several upcoming articles in this series, we cover which investment vehicles are well suited to a Protective Portfolio.
Build in Fast Cash (to Ensure Easy Access)
Life happens, so your portfolio must accommodate any sudden, unexpected expenses. In other words, you need to have easy access to some of your cash. (The degree of ease in which you can access your money is called liquidity. An investment with high liquidity means it’s easy to get your money; one with low liquidity means it’s harder and/or takes longer.)
The highly liquid – easily accessible – part of your portfolio, which is intended to cover these unpredictable costs, is called a Cash Reserve or an Emergency Fund, and it should be the very first thing you build up. Your Emergency Fund is, therefore, the first “basket” you need to fill in your Protective Portfolio.
Check out Part 2 of this article series, “How to Build and Grow an Emergency Fund.”
R.I.G. It! (to Hunt Returns, Income, and Growth – Sensibly!)
Your other portfolio baskets are where your money goes out and starts working for you. In my Mom’s case, she’ll have to build up her Emergency Fund first. But, when she’s ready, she’ll add baskets that help her get higher returns, generate a regular income stream, and ensure that her money grows (so she doesn’t outlive her savings).
In certain economic climates (like now [April 2018]), returns for things like savings accounts, Money Market products, and CDs are quite low. Your main nemesis here is inflation (the increase in prices and decrease in money’s purchasing power). We must ensure that our savings is holding its value. To do this, my Mom will have to look further afield for investments with higher interest rates.
In upcoming articles in this series, we explore how to go after higher returns, sensibly, such as using Money Market products.
As someone trying to live on Social Security, supplemented only by occasional part-time work, my Mom will want her portfolio to eventually generate some steady income. Income-generating investments usually pay out monthly or quarterly, which can help cover her living expenses.
In an upcoming article in this series, we cover some income generating investment types.
Growing your savings is especially important for younger retirees like my Mom. The women in our family tend to live well into their 80s and early 90s, so as my Mom’s savings increase, she’ll have to make it last. She’ll want to add some investments designed to grow her savings.
In an upcoming article in this series, we cover some specific investment types that aim to provide growth while still maintaining a lower risk to your principal.
When planning an in-retirement investment portfolio, remember: 1) protect your principal, 2) build up your Emergency Fund, and 3) put your cash to work, sensibly!
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–Good luck, we’re all gonna need it!
- inflation: the increase in prices and decrease in money’s purchasing power
- liquidity: the degree of ease in which you can access your money
- high liquidity: when it’s easy to get your money
- low liquidity: when it’s harder and/or takes longer to get your money
- portfolio: the various types of investments you hold
- principal: the amount you saved and originally invested