Investing in your 60s is a time of transition. No longer are you focused on growing your retirement funds. Now, it’s time to crack into that nest egg.
So, you need to change your investment strategy. The idea is to withdraw enough to help you get by while holding enough in reserve to finance the rest of your life.
Here are pointers for a financially stable retirement:
1. Estimate how long your savings must last
You can’t plan effectively without an idea of how long your money should last.
Of course, you can’t know how long you’ll live, so we’re talking about estimating the longest you might live, so you won’t run out of money too soon.
A 65-year-old woman can expect to live to nearly 87, and a man of 65 can anticipate living until 84, according to the Social Security Administration, whose Life Expectancy Calculator gives a rough idea of expected lifespans.
2. Calculate annual expenses
To plan your finances in retirement, you’ll need specific spending data, not estimates. If you have budgeted and tracked your spending, you’ve got the data you need. If not, it’s a good idea to get started now.
Automatic tracking is simple with tools like those provided by Money Talks News’ partner You Need a Budget. We look at YNAB in “An Easy Way to Track Your Spending and Build Your Savings.”
But a notebook or spreadsheet also will do just fine — as long as you keep it up.
After tracking for a few months, you’ll begin to see where your money’s going and can decide how much to withdraw from investments.
3. Fully fund emergency savings
Keeping a cushion of savings in cash or short-term CDs lets you ride out market downturns without selling stocks at low valuations.
Some experts advise having a big enough emergency fund to support yourself for 18 months to two years.
4. Plan your withdrawals
Retirees need a system for regular cash withdrawals. For example, one popular system suggests withdrawing 4% of your initial savings balance each year, then adjusting that amount annually for inflation.
The 4% rule is not ironclad, but it does provide a framework. The key is to adopt a system, then adjust it as necessary. We discuss withdrawals in “How to Prepare Your Finances for Retirement in 7 Steps.”
5. Seek safety
How much you keep in CDs, bonds and high-yield savings accounts depends somewhat on how much safety you require. Intelligent risk is necessary with part of your investments if you don’t want inflation to erode your portfolio’s value.
Many retirees follow this rule of thumb (called the “glide-path” rule):
- Subtract your age from 100. The resulting number is the percentage of your investments you should hold in stocks.
- Invest the remaining amount in bonds and money market funds.
If you’re 70, for example, keep 30% of your portfolio in stocks — including mutual funds and ETFs — and the remaining 70% in bonds.
Money Talks News founder Stacy Johnson explains how to use this formula in “5 Mistakes That Will Ruin Your Investment Returns.”
Does this rule provide enough growth to keep a portfolio going strong? Experts disagree.
6. Don’t neglect growth
The other end of the retirement seesaw is the need to grow your nest egg, at least a little.
Unless you have so much money that you don’t need to worry about inflation, you’ll need some growth investments. Usually, that means individual stocks, mutual funds and/or ETFs.
Getting started investing is not as hard as it might sound. Learn more by reading “9 Tips for Sane and Successful Stock Investing.”
7. Plan for required minimum distributions
After you reach a certain age, the Internal Revenue Service requires you to take annual minimum distributions from most types of retirement accounts, including 401(k) plans and traditional individual retirement accounts.
Previously, that age was 70½, but a recent federal law increased it to age 72 for people who turn 70½ after Dec. 31, 2019.
These minimum annual withdrawal amounts are based on your life expectancy and account balances.
The IRS rules are specific and inflexible about how much to withdraw for required minimum distributions (RMDs) and when. Ignore them, and you could face stiff fines, as we detail in “Beware These 3 Tax Penalties on Retirement Accounts.”
If you would normally have to take an RMD during 2020, however, you’re off the hook. Another recent federal law waives RMDs this year in light of the coronavirus pandemic.
8. Keep a lid on spending
Financial discipline is crucial if you don’t want to outlive your money.
Take an unsentimental look at your spending, decide how much to withdraw annually from savings and investments, and stick to that plan through bad times and good.
9. Get help now and then
When you manage your own money, it’s a good idea to pay an expert for an independent review at least occasionally.
So, consider hiring a Certified Financial Planner who works on a flat hourly rate to review your retirement plan, income and expenses.
Money Talks News founder Stacy Johnson discusses when and how to find a trustworthy financial adviser in “2-Minute Money Manager: How Do I Find a Good Financial Adviser?”
10. Rebalance your portfolio
You’ve decided what proportion of your investments to allocate to various types of investments, but over time your investments perform differently, throwing off your original allocation.
Every so often — many experts suggest once a year — you’ll need to adjust, or “rebalance,” your portfolio to restore it to your original allocation choices.
11. Consider other sources of income
Stocks and bonds are not your only investment choices in retirement. Two other possibilities are longevity insurance and annuities.
Longevity insurance starts payouts when you reach a specified age. You might pay $50,000 for a policy at 60, and start receiving payouts of $15,000 or more annually at 80, for example.
No doubt you’ve heard of annuities, which are financial contracts sold by insurance companies that promise to pay you regular income. Since there are several annuity types, look carefully before you leap. Even better, get Stacy’s take in “2-Minute Money Manager: Should I Buy an Annuity?