Getting to retirement with enough money saved to continue living life as you want to is what so many of us focus on. However, should you sell all your assets and simply have your cash in one place to fund that life? Or, is it a good idea to continue to invest after you have retired?
Here, we look to answer that question by addressing the pros and cons of investing in retirement, so that you can see if it is suitable for you. As ever, investing is highly dependent on your specific circumstances and risk profile.
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Pros to investing in retirement
Investing in retirement, in short, can be a good idea. Many retirees and pensioners continue to invest way past retirement and can do so successfully. Here are some reasons why they do so:
Income
Some investments provide an income. That income can help make up a shortfall in your pension or simply be extra spare pocket money each month. Such investments will include bonds with an annual or monthly interest payment (known as the coupon). Stocks with dividends can also provide an income. However, dividends are not a contractual requirement like coupons are for bonds. However, they can lead to a substantial amount of money being paid out to shareholders monthly, quarterly, or annually.
Continued Growth
It could be that you may have a healthy amount of income coming in each month. As a result, your cash on account could be accumulating at the bank. While it can be tempting to spend that extra amount on the finer things in life, a more prudent approach would be to invest the extra to see it grow.
Of course, it’s your retirement - you’ve worked hard. If you want to buy something frivolous or can afford to go on a luxury holiday, now is the time. But if you have money sitting in the bank, it can be invested to grow what cash you have. It can mean you can go on that holiday and protect the amount you have saved in the long run.
Cons to investing in retirement
There are some potential cons to be aware of when investing in retirement. It is important to weigh them up against both the pros of investing and your situation. It could be that while investing after retirement can result in gains, it simply is not an option for you due to the following risks:
Less cash
Perhaps the most obvious con to investing after retirement is the fact that doing so ties up your cash. As a result, you have less cash at the bank to spend elsewhere. That cash could be money you need to cover day to day costs or any unforeseen expenses. Investing in retirement may not be suitable for you if you have less spare cash available. It does not matter if that cash is already saved in your bank account or not.
If you are still tempted, you need to decide how much money you can afford to tie up in investments. Importantly, you still need to continue to live as you want in the short to medium term while your cash is invested in any number of financial products.
Investment losses
The problem with answering the question ‘should I invest after retirement’ is that everyone has a different risk tolerance. The risk is a loss in the value of your investment. While investment losses are always a risk at whatever stage of life you are, they can be more acutely felt in retirement. If you incur an investment loss, you have less cash than if you had simply left it in your current account - with no salary to replace it.
Having a finite income to survive on now that you are no longer earning a salary makes you far more sensitive to losses. Investing in retirement should only be done to the level that you can afford to lose, therefore. Additionally, much safer investments should ideally be targeted. Bonds, ISAs and other financial instruments with a low risk of loss attached to them are needed.
How to invest money after retirement
Investing money after retirement can be a highly effective way to make your pension pot go that bit further. It can also be a financially beneficial idea for your heirs as it will mean that you could still be growing the money you have to leave them after your death.
However, investing is not without its risks. As we all know from the adverts, the value of investments can rise as well as fall. If you are still keen on investing in your retirement, if you do have money to spare, safer funds and investments are most likely the best way to go. In doing so, you will diminish the risk of losing money that you may later rely on or that you can leave to your children.
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