Retirement is supposed to be restful, isn't it? But these days, the very idea of retiring is causing a lot of headaches. Many people are holding off on retirement much longer than they originally planned, since the turbulent stock market has meant their savings have taken a hit. So once they do actually get to the point where they're financially secure enough to retire, retirees want to make sure that security sticks around.
If you're in the same boat, you're probably wondering what your options are. Sure, it's tempting to just stick your money under the mattress where it's safe and sound. Given the economic problems we've had in the last few years, who could blame you? The trouble is, squirreling cash away isn't actually that safe. There are a couple of reasons for this. First, most home insurers only cover a small amount of cash (in the $200 range) in the event of, say, a house fire [source: Homeowners Insurance]. Hopefully your retirement savings add up to more than that, so you'll need to find some place a lot less vulnerable to store your funds. The second reason it's not a good idea is that your money doesn't grow. During the span of your retirement, the overall economy will experience inflation, meaning that any money you've put in a shoe box won't be worth as much a few years down the road. This is why it's important to choose your egg's nest wisely; a competitive interest rate can help counteract any loss of value your original savings experience [source: Bold].
No matter what you decide to do with your money once you retire, there are a couple of things to bear in mind. First: make sure you can actually access your money if you need to do so. There's a certain amount of unpredictability about retirement, particularly regarding health care, and you don't want to be stuck without cash because your money is too hard to reach. Second, make sure someone else you trust (whether that's a grown child, another relative or close friend) has the appropriate power of attorney to access funds in the event of an emergency. Go over your financial plans with that person sooner rather than later; they need to know exactly who to talk to, where your money is and how to access it. You'll have peace of mind knowing that even if you're unable to make financial decisions, your money is being well cared for [source: White].
There are lots of options out there, so where's the best place to keep your retirement savings? Check out the next page to find out.
How to Invest Your Money After Retirement
As you prepare your retirement savings portfolio, the first thing you should do is set aside money for emergency purposes (three months' living expenses is usually the minimum amount recommended). The emergency fund gives you a cushion in the event of illness, natural disaster or any other unforeseen expense, and it provides a backup in the event of another economic crisis. Just make sure you can easily access your emergency money if the need ever arises. Once you've got that taken care of, you can explore relevant investment opportunities.
Retirement is not the time to put most of your money into high-risk investments. You want to ensure that you have a secure financial base to last the remainder of your life, which could realistically be several decades. Whatever money you put into a high-risk investment could be lost, so you need to balance things out with low-risk financial opportunities [source: Consumer Boomer].
Treasury bonds are one of the safer options. They have a fixed rate of interest, which means you're guaranteed at least that much growth over the life of the bond; it won't earn you as much money as a good stock market gamble, but it will certainly earn more than a bad one. CDs (certificates of deposit) are also a possibility, although you'll usually be penalized if you need to withdraw money early. If you have an IRA (individual retirement account), you can keep our funds there and withdraw without penalty once you reach age 59 1/2 [source: Mutual of America].
Another option financial advisors recommend is an annuity. You put money into an annuity, either in a lump sum or over time (before you retire, naturally), and in return you receive regular payments back, almost like a salary. There are different kinds of annuities: fixed annuities, which have a set rate of interest; indexed annuities, whose interest rates fluctuate according to a particular index (such as the S&P 500); and variable annuities, where you and pick and choose how your money will be invested, and the rate of your return is dependent on the performance of those investments.
Check out the next page for more money management and investment information.
More Great Links
- Bold, Adam. "5 Things About Retirement You May Not Have Considered." U.S. News and World Report. May 10, 2011. (May 15, 2011)http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/05/10/5-things-about-retirement-you-may-not-have-considered
- Consumer Boomer. "5 Essential Pre-retirement Investment and Planning Strategies." March 4, 2011. (May 10, 2011)http://consumerboomer.com/pre-retirement-investment-strategies/
- Go to Retirement. "Retirement Emergency Fund." Dec. 17, 2008. (May 11, 2011)http://gotoretirement.com/2008/12/building-retirement-emergency-fund/
- Homeowners Insurance. "Keeping 'cash under the mattress'? Know what's covered in the event of a loss." April 29, 2011. (May 9, 2011)http://homeownersinsurance.com/blog/keeping-cash-under-the-mattress-know-whats-covered-in-the-event-of-a-loss.php
- Mutual of America. "Your Retirement Center: IRA Withdrawals." (May 12, 2011)http://mutualofamerica.com/lbp/retirement/retire_ira_005.html
- U.S. Securities and Exchange Commission. "Annuities." April 6, 2011. (May 11, 2011)http://www.sec.gov/answers/annuity.htm
- USAA. "Guard Retirement Against Emergencies." Jan. 23, 2009. (May 9, 2011)https://www.usaa.com/inet/pages/ret_guard_ret_emergencies
- White, Martha C. "Pick This, Not That: Best Financial Products for Retirees." Wallet Pop. Jan. 13, 2011. (May 10, 2011)http://www.walletpop.com/2011/01/13/pick-this-not-that-best-financial-products-for-retirees/