Understanding the Best Investment for Elderly Investors
Finding the best investment for elderly investors is a somewhat daunting task as the investments must be safe enough so that retirees do not lose any of their hard earned money. At the same time it should generate a decent rate of return to beat inflation. An investment that has a rate of return which is less than the rate of inflation is in effect a bad investment, because the value of money is going down.
Asset Allocation for the Elderly
Nowadays retirees are finding that the time span of their retirement life equals or even exceeds their time spent in the workforce. They thus run a risk of running out of their retirement funds. Asset allocation is an important aspect of investing for anyone and more so for the elderly because they have to take care to preserve the wealth that they have already created. Most financial advisers are now advising their clients to maintain a more aggressive portfolio and to switch over to a conservative portfolio in their seventies rather than in their sixties.
By an aggressive portfolio they mean a higher percentage of stocks than what was considered healthy a ten years ago. When you are sixty or older it is of course not wise to invest in a quick rich scheme or anything foolish. A portion of the portfolio should always be liquid enough to cover any unexpected emergencies. The liquid portion of the portfolio can contain investments with minimal risk such as money market funds or certificates of deposit.
Reinvesting Retirement Accounts
You have been slaving away and contributing as much as you can to your retirement accounts hoping to hit Hawaii the day you retired from work. Now that you are in the golden years of your life, what is stopping you from spending like a king?
Well everything. The housing bust and the great recession has forced many people to rethink their retirement strategies. Not having the luxury of long years ahead to weather the downturn and with retirement portfolios taking the greatest hit, recent retirees have cut back spending and are less likely to take a vacation let alone relocate to a tropical island. Americans are once again learning the long-forgotten lessons of frugality and simplicity.
Retirees can withdraw from their retirement accounts without penalty after the age of 59 1/2, but no one is forcing you to do do. It is better to keep them in the retirement accounts to allow for maximum tax-deferred growth, if there is no immediate requirement for the funds. However account holders of traditional IRA accounts are required to do Required Minimum Distributions once they reach the age 70 1/2. Even that can be avoided by reinvesting the funds or converting a traditional IRA to Roth IRA.
When it comes to finding the best investment for elderly portfolios, one rule stands out: invest in things that are simple enough for you to understand. Do not invest in complex products such as annuities and futures if you are not sure what you are doing. You are not alone, even Warren Buffet famously stayed away from tech stocks during the tech bubble in the nineties because he did not understand them and we all know that ultimately he was proven to be right.
References
- IRS Website for information about IRAs, https://www.irs.gov/pub/irs-pdf/p590.pdf
- For information about IRA distributions, https://www.irs.gov/retirement/article/0,,id=111413,00.html#distn
Image Credit: Daniel Hughes, https://www.flickr.com/photos/dghughes/332651213/
