Where Should You Put Your Money After Retirement?

The best place to put your money post-retirement depends on your financial situation. You can put it in an annuity product to guarantee a lifetime income or place your money in very low-risk investments. Or, you can test your luck on higher-risk investments. Many retirees do all three.

Retirement requires a significant shift in financial thinking.

While you’re working, you’re often saving as much as you can to build up your nest egg. Your goal is to save enough for a comfortable retirement.

As soon as you stop working, you begin to draw down your retirement savings. Your goals change, too. Rather than stash away money, you’re trying to balance cash flow so you can have a comfortable life without running out of savings. You want to guard against your portfolio losing value (market risk) and also running out of money (longevity risk).

How do you manage that?

We explain several strategies that you can use to manage your money so that you continue to thrive long after you stop working.

What Are the Best Ways to Use Your Money After Retirement?

There is no single best way to manage your money. The most appropriate financial strategy for you depends on your financial situation, your lifestyle, and your goals.

You can think about a money management strategy in retirement in terms of three portfolio components.

1. Your foundation. This is the portion of your wealth that you use to cover your living expenses. Ideally, you can create a sufficient retirement income that can cover your expenses without dipping into your savings. This portion can include financial products that offer guaranteed income, like annuities.
2. Safe investments. If you have your foundation covered, you might want to try building your wealth safely. You might put your money in very low-risk investments like treasury bonds or certificates of deposit (CDs). Or, you might buy low-risk financial products, like annuities, that offer steady growth.
3. Higher-risk investments. If you have a solid foundation and you’ve got some safe investments, you may feel comfortable putting some higher-risk, higher-growth investments in your portfolio, too. In general, financial experts don’t recommend that retirees have a large proportion of high-risk investments. But they may be appropriate for some parts of your portfolio.

Of course, your financial circumstances may change your approach to using your money after retirement.

If you have fewer savings, it may be a good idea to use your money to establish your foundation. For example, you might choose to use your money to create a steady stream of retirement income. A steady monthly income check can give you peace of mind and help ensure you can afford your day-to-day expenses.

If you feel more secure and you’ve already got a solid foundation and a healthy mix of safe investments, you may opt for putting more money into assets that grow your wealth and add some higher-risk investment options to your portfolio. That way, you can achieve greater comfort and build a legacy to leave for your family.

Note: Annuities can be a safe way to grow your money, but they’re not investments.

An investment is an asset that you buy and that you can sell later for a profit. An annuity is an insurance product. Like other insurance products, it helps to protect you against an outcome — running out of retirement money. It’s not an asset that you can sell.

Another reason an annuity isn’t an investment is that investments usually carry significant risks — prices sometimes rise and sometimes fall. On the other hand, many annuities (especially fixed annuities) are extremely low-risk because they offer guaranteed income and a guaranteed minimum interest crediting rate.

Taking Care of Your Money After Retirement

Managing your portfolio doesn’t end when you retire, but it changes. Many of the principles from managing your portfolio while you were working still apply.

For example, it’s still good practice to start with a clear retirement plan. Diversification of your portfolio is also still important to ensure that you have some growth while minimizing risk. And you’ll want to manage your money in a way that minimizes taxes and fees.

But while many things stay the same, there are several factors that become especially important after retirement.

Cash flow. Your income may shrink substantially, so it will be critical to pay attention to what you’re spending relative to what’s coming in. Be thoughtful about your expenses in retirement and stick to a budget. You can increase your retirement income in several ways, including by buying annuities.

Liquidity. Liquidity refers to how accessible your money is. Cash is very liquid — you can access it right away. Your house is a less liquid asset because it could take months before you sell it and get money from it. A post-retirement financial strategy should include some liquidity so that some of your assets are accessible in case of an emergency or unplanned healthcare costs.

Portfolio balancing. It’s important to continually re-evaluate your portfolio and strike the right balance between less risky and more risky investments. Consider shifting your risk profile in retirement by selling some of your higher-risk assets and buying lower-risk ones instead.

As always, if you’re not sure how to take care of your money after retirement, consider consulting a financial planner for investment advice customized to your specific situation and goals.

Common Post-Retirement Assets

So what assets and products are a good fit for you after retirement?

Here are some of the most common choices and where they would fit in your portfolio. Each one has a unique risk profile, tax implications, and ideal time horizon, making it appropriate for a different role in your portfolio.

Annuities

Annuities are insurance products designed to ensure you don’t run out of money in retirement. You buy one from an insurance company. Your money goes to fund your annuity account, and it grows during what’s called the accumulation period. When you’re ready, you can annuitize and convert the account into a steady stream of income.

There are many different types of annuities. Different types of annuities may be appropriate for different goals.

Some annuities are better for creating that first foundational component of your portfolio — covering expenses. For example, immediate annuities convert a lump sum of cash into a steady stream of income soon after you buy them.

Other annuities are better for steadily growing your money. Canvas Annuity’s fixed annuity products fall into this category. They let you grow your nest egg over several years. Later, you can annuitize and start receiving your income payouts. Or, at the end of the term, you can roll your money over and grow it for another term.

Some annuities fall into the higher-risk, higher-potential-growth category. Variable annuities and fixed-indexed annuities are two examples. They both offer variable interest rates that are tied to the stock market. That means you can earn more money than fixed annuities, but you could lose money too.

Certificates of Deposit (CDs)

CDs are deposit accounts that you can open at a bank, credit union, or brokerage firm. They offer a fixed interest rate as long as you keep your money in the account for the length of the term. Terms can range from a month to many years.

CDs are very low-risk ways of growing your money because the interest rates are guaranteed (as long as you don’t make early withdrawals). Also, if you open CDs at a Federal Deposit Insurance Corporation (FDIC) authorized financial institution, your deposits are insured up to $250,000.

CDs typically offer better interest rates than savings accounts but much lower rates than annuities. CDs are best for earning some interest in a very low-risk way over the short term.

Bonds

Bonds are debt instruments. When you buy a bond, you loan your money to a company or government. That organization pays you back your loan over time with interest.

Returns from bonds are predictable and are guaranteed by the issuer. There are only a few reasons you wouldn’t be paid the rate you were promised. If you sell your bond early, the company cancels the arrangement early, or the company goes bankrupt.

The risk profile of a bond depends on the company or government that issues the bond. For example, U.S. treasury bonds are among the lowest-risk products around, but bonds from a less-established company may be much riskier.

Bonds typically make up the low-risk portion of a post-retiree investment portfolio.

Dividend Stocks

Companies or corporations divide their ownership (stock) into shares. When you own a stock, you own a piece of the company. Some companies pay a portion of their profits (a dividend) to shareholders that own their stocks.

Dividend stocks are interesting because they are both an asset and a potential source of retirement income.

While some companies are well-known for paying regular dividends, no company is obligated to pay those dividends. So while dividend stocks can be a source of income, they’re not as reliable as annuities.

Dividend stocks can be a good way of creating a stream of retirement income while also filling up the medium or higher-risk side of your portfolio.

Mutual Funds

A mutual fund is a product that pools together money from a number of investors to buy a mix of securities like stocks and bonds. Because your money is pooled, you can buy into a diversified portfolio of assets with a relatively small investment.

Mutual funds can be low-, medium-, or high-risk depending on the assets that the fund purchases. They don’t usually produce a regular income, but if the assets bought by the fund go up in value, you can sell your shares and earn a profit. Note that you can also lose money with mutual funds too.

Create a Stream of Retirement Income

The transition out of work requires a shift in how you manage your money and portfolio.

There’s no one best place to put your money after retirement. In fact, a common strategy is to diversify your portfolio so that you don’t have all your eggs in one basket.

One way to do that is to think in terms of three baskets:

• Your foundation, which generates ongoing income. You can do this with annuities and dividend stocks.
• Low-risk growth options, which are very safe but still help you build wealth over time. These can include products like annuities and CDs.
• Higher-risk growth options, which may offer higher growth, but also may lose you money. These can include stocks and mutual funds.

Thinking in terms of those three categories can help you build a financial strategy that suits both your financial situation and your goals. Remember, if you’re not sure, it’s a good idea to consult a financial advisor for individualized financial advice.

If you think a guaranteed retirement income could be useful to you, consider the simple, no-nonsense annuities Canvas Annuity offers. These annuities offer some of the best rates in the industry. They help you grow your savings and can be converted into a lifetime income.

Learn more about our products, or get started on your application today.