How To Invest in Retirement

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The primary goal of investing is to stop investing. To stop working is probably more accurate, but once we retire, most of us hope it will be a daily routine of enjoying life, not thinking about work, and not worrying about money.

For many of you, whether or not you're close to retiring, it requires some mental gymnastics to imagine being done with financial anxiety. We train ourselves to worry about money more than anything else, and social security payments don’t put an end to those worries. When you’ve spent your entire life working, earning, and saving, spending money when you don’t have regular income might very well terrify you. Even if you have 50 years worth of living expenses stashed away, the fear your money will run out trumps most other emotions.

The majority of retirees continue to invest, as they plan to keep their money active and working before it gets used to cover expenses. However, the strategy employed once you leave the workforce should change to account for your reduced earnings and your need to be more conservative. While you still have many great years ahead of you, you don’t want to spend any of that time replenishing a nest egg that went into a bad investment.

As your days as an employee come to a close and you start thinking about the trips you’ll take and the golf you’ll play, put aside some time to rethink your investment strategy. If you’re ready, we can do some of that work right now.

Doing the Math

At 66, you’ll likely have two sources of income: social security and payouts from your retirement account. While some people will have more, it simplifies the equation if we focus on these two categories. For the 45-year-old retiree, you have to come at things a little differently. Hopefully, if you’ve managed to live your dream and stop working 20 years before everyone else, you know what you're doing and can read this article in a decade or so.

If you claim social security benefits at 70, the maximum you can receive each month is around $3,700. That number goes down if you start claiming closer to 66, and you can get a bonus if you wait to start drawing later on. For our purposes, $3,000 will provide a nice, even number. So, $3,000 becomes your income, not pulling from whatever retirement savings you have and not subject to taxes as long as you don’t have other income skewing your numbers.

For some, $3,000 will cover a lot of the non-discretionary spending. If you own your house and don’t eat king crab and truffles every night, social security money can go a long way. Nevertheless, most retirees use a combination of IRA distributions and social security payments to get by each month. Let’s imagine you have $6,000 in monthly living expenses, meaning $3,000 needs to come from a source other than social security.

How much you need to spend on a month-to-month basis doesn’t necessarily affect your investment strategy before retirement (aside from helping you budget), but it makes a big difference once you’ve stopped working. For those with a lot of cash, it shows how much you have available to put toward new, conservative investment strategies. You can also determine how much should be in readily accessible savings accounts.

With an understanding of what you spend and what you have, you can either break it down by year or by stage; some people divide their funds evenly for each year over, say, a 30-year stretch. Others take what is often referred to as the “bucket” approach, looking at their retirement as a three-stage timeline so they can put more toward discretionary spending in the early going while leaving the money for stages two and three cautiously invested.

There are pros and cons, risks and rewards to each strategy, but it’s most important to have a strategy you can adhere to. That’s how you’ll make retirement fun and lasting. Now, on to the actual investment choices.

Where To Put Your Dollars

Lots of people don’t change things up that much once they retire. If you have diversified holdings and income from your investments helped you retire in the first place, you won’t be pressed to alter your strategy very aggressively. However, in order to avoid finding a new job, you want to make sure your capital isn’t stashed in volatile markets. With no earnings to recoup losses, low risk makes a lot more sense than high reward.

Bond Investing

Bonds may have been part of your initial strategy, or you may have found them too safe and boring and avoided them while working. For a retired investor, this can be a good place to keep money where growth is slow, safety is steady, and taxes can be somewhat circumvented.

I’ve always appreciated municipal bonds because they keep your money local and they also offer a strong tax incentive. While some bonds are subject to federal taxes, this option prevents the IRS from getting up in your business. You’ll keep up with inflation and avoid the volatility that makes regular investing good in the long term but scary when the clock is ticking.

If you plan right, you can ladder your bonds so they reach maturation at staggered dates and don’t leave you with a bunch of money you’re unable to access when you need it. Nothing glamorous with this option but it certainly makes sense when safety and stability are two of the most important factors.


With everything laid out on the table, you might find your savings account provides the best option. Depending on where you bank and how much money you have, the rate of return on your standard savings account could be close enough to what you’d get with one of the options that lock you into a 3-5 year term. A great savings account can get you 2.50% APY, and a pretty good CD might deliver 3%. Maybe you want to invest in both options, or maybe you’d rather have that money right next door to your checking account where it’s easy to reach.

Keeping cash in a decent savings account is especially useful for those who have most of their needs met by social security and mandatory IRA withdrawals. If you access cash sparingly, you’ll want it kept in an account where it can earn interest. However, if you don’t know when you might snag a few grand to take a cruise or visit grandkids, you don’t want that money tied up in a bond or CD. With enough money in savings, you’ll see interest coming into your account in decent chunks. If you pull money from that account on a very limited basis, you might only use interest and avoid touching the principal balance you started with.

When we use stocks and real estate and the more active investing strategies in our 30s, 40s and 50s, cash investing has less appeal and kind of falls off the radar. It’s important to remember that there’s value to this approach, especially when you’ve saved up that nest egg and mostly just want to make it last.


The majority opinion is that stock investing is for younger investors who can weather an economic downturn or stall in the market. As a rule, it’s not a bad one. Patience works great when you have to slog through the peaks and valleys of economic growth, but it’s not as helpful when you want to have a fixed income for the remaining years of your life.

However, there is safety within the stock market, and one of the greatest gifts you can give yourself is the gift of dividends. With companies having good and bad days, those that pay dividends to shareholders tend to make that volatility a little less noticeable. These are also the companies that won’t experience the violent price fluctuations some of the smaller and emerging businesses do.

Ideally, you’re not searching for a new dividend-paying stock to buy on your 71st birthday. A better practice would be routinely buying shares of that stock before you retire, then maintain that holding once you’re out of work. With substantial stock positions unrelated to your retirement account, you can take your gains as needed and otherwise let that money continue to grow as if you hadn’t yet retired.

We invest a certain way in our younger years because that strategy is most likely to pay off. We change things up once in retirement because we have less time to recoup losses and want to play it safe. That change in tactic doesn’t negate the fact that traditional stock investing is a great way to make money in the long run. If you can maintain an element of that during retirement, you might keep getting richer even without regular income.

As far as the percentage of your portfolio made up of stocks, best to taper that off once you retire. Some people say you should subtract your age from 100 and use the remaining number to dictate your stock investment. A 70-year-old keeps 30% of his or her capital spread among stocks, 20% for an 80-year-old and so on and so forth. I don’t think this math needs to be taken as a hard and fast rule, but if you really need a pie chart to drive things, go for it. Just don’t ask me what to do when you turn 101.


As I mentioned earlier, you can come pretty close to a certificate of deposit APY with a good savings account. Nevertheless, you should be able to see slightly higher returns with CDs and there’s something to be said for stashing money where it will earn a set amount and you can’t touch it until it matures.

If you go this route, I think there’s a good case to be made for ladder investing, where you buy a new 5-year CD each year so that, a few years down the road, you have a deposit reaching maturity every year, you maintain good liquidity and you can get the best rates (2-, 3- and 4-year CDs will all come with lower APYs).

As much as you want to have money at the ready when you have no steady income, you also need safeguards to ensure you don’t fly through your funds too quickly. Certificates of deposit and bonds help you to help yourself, tying up a little bit of money, allowing you to earn interest and then freeing those funds up in a relatively short amount of time.

Again, not the most exciting investment strategy and not one I regularly pitch to clients still planning for retirement. If you already left your job and have more cash on hand than you think you’ll spend in the next 10 years, CDs can be a useful option.

Real Estate

Ah, real estate. The forever investment. Whether you’re 18 or 81, a good piece of land can reshape your financial position. I’ve seen dozens of people start investing in properties once they retire, and most of them kick themselves for not starting the process earlier.

In some cases, a rental property is the perfect purchase for a retiree. Payments from your tenants cover costs, maybe put a little extra money in your wallet, and place a valuable asset in your portfolio. Unless you own a few giant apartment buildings, you don’t have to worry about the income affecting your social security taxation; if you do get to that point it means your properties are bringing in substantial revenue.

Owning a rental as part of a self-directed IRA provides a great way to diversify and keep your retirement account healthy even as you take distributions. There are limitations on how that property can be used, but it’s one of my favorite ways to increase my clients' wealth.

The housing market can always take a turn, but it doesn’t have the same volatility as the stock market and rarely leaves people with much, if any, loss when they go to sell a property. You can’t put your entire retirement into a rental house because you’ll have zero spending money, but if you have the funds to add a piece of real estate to your portfolio, I’m confident you’ll end up happy with the decision.

It’s easy to forget that investing can and should continue once we retire. Having a solid plan you can stick to even while you enjoy the money you saved will help that retirement stay fruitful throughout. If you can sniff the working finish line, make sure you start planning for what you’ll do when you cross it.

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