Investing While Retired? What to Keep in Mind

MOST INVESTORS KNOW it's wise to spread their money between stocks, bonds and various subcategories. But those in or near retirement may give special attention to organizing income-producing assets like dividend-paying stocks, interest-earning bonds and certain funds designed for big yields.

Why Diversification Is Important

So, what are the factors that go into setting up the income-producing part of the portfolio?

Bruce Elfenbein, an advisor with SecuRetirement in Hollywood, Florida, has a rule of thumb for retirement investing: “How much money can you afford to lose before it will negatively affect your quality of life in retirement? If you double that number, that's a benchmark for the amount of money you can afford to have at risk.”

That way a 50% drop in the market will leave enough to keep up the lifestyle.

As any advisor will say up front, everyone's situation is different. But most retirees share a need to get the most income possible without taking on too much risk.

After all, retirees requiring a given income can be in a very tight spot if they continue taking the same amount after assets have lost value. A portfolio that loses 20% of its value in a market plunge must grow by 25% to get back to where it was, and one that loses 50% must grow by 100%. Reducing the balance by taking more out after a drop just makes matters worse.

Read the full article at U.S. News & World Report.

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