Investing After Retirement: What to Know to Help Grow Your Savings
You’ve been saving for years in hopes of living a comfortable life in retirement. But is that enough? Will your retirement savings last? Continuing to invest when you enter retirement is one way that may allow your savings to keep growing.
When you calculate average retirement savings of all families with the typical retirement account withdrawal rate, retirees pull about $3,831 a year from their savings.1 2 Combined with the average amount for a social security payout at age 62 ($12,552), retirees have access to approximately $16,383 each year.3
For many, this may not be sufficient. That’s why choosing to invest a portion of your dollars as you enter retirement is a popular concept. You can continue to grow your retirement savings, and still have money to live on!
How to Invest After Retirement
Successfully investing after retirement centers on one key aspect: making smart decisions. When you are investing while you are still employed, you have a steady income to fall back on. If there is a market fluctuation, you can just readjust your strategy or push retirement off a year to continue saving. In retirement, however, those investments may be your only income, making it much more important to invest wisely.
A safe way for people to invest after retirement is to invest in an immediate annuity. Sometimes called an income annuity, immediate annuities allow you to invest a lump sum of money with an insurer, and the insurer would then pay the money back to you. These payments include interest. This can be a safer option because it guarantees a monthly payment, either for a set period of time or for your entire life.
Although an annuity gives you the security of a guaranteed annual income, there is no promise the money you receive 10 years from now will carry the same purchasing power as it did on the first day you invested, due to inflation. Inflation is the increase in value of materials, goods or services without a corresponding increase in the value of currency. Consider a loaf of bread. A year ago, the cost of that loaf of bread at the grocery store was $2, but now the same loaf of bread is $2.50. As a result of inflation, your $2 cannot purchase the same goods as before.4
In retirement, to figure out how much to put into annuity, you should start with figuring out your monthly expenses. Then, see how much of your retirement you are using to cover those expenses.
A simple formula is: Monthly expenses – Social security = Amount of retirement funds you use each month
For example, if you need $5,000 a month to cover your expenses and you get $3,000 a month from Social Security, you are using $2,000 from your retirement each month, or $24,000 per year. Based on this, you could invest $72,000 of your retirement funds into an annuity and guarantee that monthly income for 3 years, $96,000 for 4 years, $120,000 for 5 years, and so on. This would allow you to secure your monthly needs for a fixed amount of time, and have leftover money to use for continued investments.
Life is unpredictable, and the financial markets are too. When you invest in annuities, even if a market fluctuation results in a loss, your income would be guaranteed based on the terms in your annuity.
Investment advisor representatives offer advisory services through Mutual of Omaha Investor Services, Inc., a SEC Registered Investment Advisory Firm.
1 Forbes (June 5, 2016). Web page: Investing During Retirement: How To Overcome The 3 Biggest Challenges. Retrieved January 9, 2018, from https://www.forbes.com/sites/robertberger/2016/06/05/investing-after-you-retire-3-challenges-and-how-to-overcome-them/#154f2c115de8
2 CNBC (September 12, 2016). Web page: Here’s how much the average American family has saved for retirement. Retrieved January 9, 2018, from https://www.cnbc.com/2016/09/12/heres-how-much-the-average-american-family-has-saved-for-retirement.html
3 The Motley Fool (July 30, 2017). Web page: Americans’ Average Social Security at Age 62, 66, and 70. Retrieved January 9, 2018, from https://www.fool.com/retirement/2017/07/30/americans-average-social-security-at-age-62-66-and.aspx
4 Annuity.org. Web page: Inflation & Annuity Payments. Retrieved January 24, 2018 from https://www.annuity.org/selling-payments/inflation/