Investing during your working years can help you grow wealth in time for your senior years. But investing during retirement is just as important. That way, you can continue to generate wealth to buy yourself more flexibility at a time when you’re no longer collecting a paycheck.
If you’re close to retiring, here are a few important investing moves to make in the near term.
1. Review your asset allocation
There’s no need to dump your stocks just because you’re retiring. At the same time, you don’t want to have 85% of your portfolio in stocks during retirement, either. If the market tanks and it takes a lot time for it to recover, you could get stuck locking in serious losses just to access cash to live on.
Before you retire, see how your assets are spread out and make sure that allocation is suitable given your age and stage of life. A good bet is to put about half of your assets in stocks and the other half in bonds to limit your exposure to risk.
Of course, there’s wiggle room with this formula. If you have income sources outside of your portfolio (maybe you own a rental property, for example), then you might get away with a larger percentage of your assets in stocks. But either way, do that checkup before you leave the workforce for good.
2. Buy municipal bonds
Bonds are a good investment during retirement for a couple of reasons. First, they tend to be more stable than stocks. Second, bonds pay semiannual interest that you can use as an income source if you need to. And if you’re going to invest in bonds, municipal bonds are a solid bet because of the tax savings involved.
Municipal bond interest is always exempt from federal taxes, whereas the interest income you’ll collect from corporate bonds is taxable. Furthermore, if you buy municipal bonds that are issued by your state of residence, you won’t be charged state or local taxes on your interest income, either.
Another thing — though bonds are generally a safe investment to begin with, municipal bonds have an even lower default rate, historically speaking, than corporate bonds. This especially applies to general obligation bonds, a type of municipal bond that’s backed by the full faith and credit of the issuing party. This means that a city that issues municipal bonds can sell off assets, raise taxes, or do whatever it takes to make good on its obligation to bondholders.
3. Load up on dividend stocks
Just as municipal bonds can serve as an ongoing income stream, so too can dividend stocks. Dividends are typically paid quarterly, and you can use yours as income to pay your living costs or as money to reinvest.