Investing during retirement: How to make your money last
Congratulations: it's finally here. Retirement is a major accomplishment for most people. It often means you've set aside enough money to stop working and live comfortably without having to rely on a regular paycheque.
Of course, retirement means different things to different people. For some, it's about never working again, and instead spending your days doing things you enjoy most, such as travelling, pursuing hobbies and spending more time with family and friends. For others, retirement means working part time or occasionally to stay busy and engaged in a profession, but without the need to earn a regular income.
Regardless of what retirement looks like to you, the key is to enjoy this time of your life, while making sure you don't outlive your retirement savings. For most retirees, that means developing an investing strategy that will allow you to withdraw money from your portfolio, while still enabling it to grow over the longer term.
Below are some strategies for investing during retirement:
Stay invested: You've been investing for decades to earn enough money to retire. Now that you're here, keep it up. Canadians continue to live longer — life expectancies at birth are projected to increase from 86 to 90 for men and from 89 to 93 for women between 2013 to 20751 — which means that you will still need your retirement portfolio to grow after you've stopped working. For example, if you're retiring in your mid-60s, you'll need that retirement next egg to last at least the next two or three decades.
Stay safe: While you should stay invested, make sure a good portion of your nest egg is in safer assets, such as bonds and guaranteed investment certificates (GICs). Today's low interest rate environment means your money may not grow quickly, or even keep up with inflation, but those assets will likely be better protected than stocks in a market downturn. Many retirees have a healthy mix of stocks, bonds and other investments, such as real estate. But since each has its own risks and rewards, what's the right mix? Some experts recommend a 50-50 split of stocks and bonds for people in their mid-60s. The real answer is that it depends on your personal risk tolerance. Retirees should set up their portfolio in a way that better protects the funds they may need in the next five years, in the event of a short-term stock market downturn.
Stay diversified: Diversification is recommended for investors at any age, but it may be most critical when investing in retirement. Chances are you aren't bringing in extra income, and instead living almost entirely off the portfolio you've built up over past few decades. Even investors with a company pension may be relying on other money they've invested on their own. Don't risk it by putting it all into one stock or sector. Exchange-traded funds and mutual funds are easy and simple ways to diversify your portfolio by sector, geography and asset mix.
1 Mortality Projections for Social Security Programs in Canada (April 2014)