4 Tips for Investing Wisely During Retirement

You'll often hear that it pays to invest aggressively during your working years to ensure that you build enough wealth in time for retirement. But what about when you're actually in retirement? Here are a few tips for managing a portfolio during your golden years.

1. Don't be too conservative

As a general rule, once you're older, it's wise to shift some of your investments from riskier vehicles like stocks to safer ones like bonds. But that doesn't mean you should dump all of your stocks. The reason? Stocks have historically delivered a substantially higher return than bonds. Though they do carry more risk, the upside is that they'll probably do a much better job of helping you keep up with inflation during retirement.

Remember, Americans are living longer these days, with 25% of today's 65-year-olds making it past the age of 90. As such, you need to invest your savings in a manner that fuels growth during retirement, as well, and stocks are a good way to do that.

Of course, you don't want to go too heavy on stocks, either, because if the market tanks at a time when you need to make a major nest-egg withdrawal, you stand to see some serious losses. Rather, aim for a healthy mix of stocks and bonds. The classic formula for retirement is 40% of the former and 60% of the latter, but if you're not particularly risk averse or have reason to believe you'll live a longer life, then a 50/50 split certainly is reasonable.

2. Secure your share of interest and dividend income

There are a couple of ways you can make money from stocks: Sell shares at a price that's higher than what you paid for them or retain them and collect dividends. Similarly, you can profit from bonds by selling them at a higher price than what you purchased them for or holding them and collecting interest payments.

While bonds generally pay interest (zero coupon bonds being the exception), not all stocks make dividend payments. But choosing those that do can offer you a degree of protection during periods of market volatility. If you choose companies with the ability to keep paying dividends, that income can offset any potential losses you realize if you're forced to sell at a bad time.

3. Be tax-savvy

One major misconception about retirement is that seniors are off the hook when it comes to paying taxes. Not so. Just as you're taxed on investment income during your working years, so, too, are you taxed in this manner during retirement, assuming your investments are held in a traditional brokerage account. A good way to minimize that tax bill, therefore, is to load up on municipal bonds.

Municipal bonds work similarly to corporate bonds. They pay interest twice a year and return your principal investment once their term comes due. But whereas you'll pay taxes on the interest you receive from corporate issuers, municipal bond interest is always exempt from federal taxes. And if you buy bonds issued by your home state, you'll avoid state and local taxes, as well.

4. Keep tabs on your portfolio

No matter your age, it's never wise to take a "set it and forget it" approach to your portfolio. Rather, be sure to review your investments regularly and make sure they're not only performing as expected, but also serving your needs.

You may need to periodically rebalance your portfolio to ensure that you're maintaining your desired mix of stocks and bonds (keeping in mind that you may end up selling certain securities over time or that their values might change based on market conditions, thereby changing the extent to which they influence your portfolio). Of course, this doesn't mean you need to get crazy and check in on a daily or even monthly basis. But as a good practice, it's smart to do a portfolio checkup every three months, either alone or with the help of a trusted financial advisor.

Just because you're retired doesn't mean you shouldn't put any thought into investing. Be smart about managing your assets, and with any luck, they'll serve you well during your golden years.

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