3 ways retirees are making the most of their money in an unpredictable market

Harriet Edson

When stock market volatility and inflation persist, smart retirees look for ways to make the most of their money. It’s not easy, but small steps can make a difference and prevent you from making the wrong move during unpredictable times.

“Even when the sea is rough, you can always do little things,” says Andrew Feldman, a certified financial planner and founder of AJ Feldman Financial in the Chicago area.

In fact, the easiest way to deal with it is to make more with less — if you can. Yet there is no consensus on what is best, or what is comfortable in turbulent times. Some think it’s wise to look for as much income as possible, while others suggest cutting back. A balance of the two could be good. It all depends on your assets, income and the cost of maintaining your lifestyle.

“Rather than trying to squeeze more returns during times like these, spend less,” said Daniel Lee, director of financial planning and advice at BrightPlan, a financial health benefits provider in San Jose, Calif.

Others suggest increasing your income. “If you’re worried about your steady income, do some consulting work,” said Roger Young, vice president and senior retirement insights manager at T. Rowe Price. “Find a part-time job. Turn a hobby into a part-time job. There are multiple reasons for doing some work after retirement.”

However, everyone is unable or inclined to return to work after retirement. No matter which camp you’re in, finding ways to increase your income can make a difference. If nothing else, it can create a sense of control when it looks cluttered.

As behavioral economists and financial planners know, emotions can play a role in financial decisions.

“People feel the need to act,” said Brent Neiser, founder of What’s Next with Money and certified financial planner. However, he said, “standing in place can be an act in itself.”

When the stock market is volatile and inflation is at its highest in 40 years, retirees may react too quickly, rather than carefully assessing their current situation before taking action.Take a long-term view, says T. Rowe Price

young. “If you have a good plan, you probably don’t need to overreact,” he said.

First, make sure your emergency fund/cash reserves are in place. If you have enough cash to cover expenses for at least a year, you can start taking small steps to improve your finances while inflation and market volatility persist:

Consider buying dividend-paying stocks

You probably already have a few stocks that pay dividends in your (hopefully) balanced portfolio. Also, you may have stocks of companies that stopped paying dividends during the pandemic. While some companies have resumed paying dividends, others have not.

Read: These Dividend Stocks Yield At Least 5% And Have Plenty Of Room To Improve Payout Ratios

“Mixing dividend-paying stocks is a good thing,” Lee said. If the stock is relatively cheap right now, and it pays a dividend, it’s worth considering. If you have some extra cash you want to invest, “you can shift some of that money into dividend-paying stocks,” Yang said. If the dividend is in the 2% to 4% range and the stock falls, buying the dip is “certainly a sound strategy,” he said. However, if the dividend is “very high,” Young said, be cautious and consider why it is.

If you’re looking for income, you may want to pay your dividends to you rather than reinvest them, said Neiser, who also chairs the Consumer Financial Protection Bureau’s Consumer Advisory Committee. “It’s a way to get some quarterly revenue,” he said. For example, let’s say you retired from a long-term job but delayed Social Security until age 70. Dividends can be used as a way to make up your income between the date you retire and the date you start collecting Social Security.

Also, consider the tax implications of dividend-paying stocks. According to the IRS, the most common type of distribution for corporations is dividends, which are paid out of corporate earnings and profits. Dividends are classified as ordinary dividends or qualified dividends. Ordinary dividends are taxed as ordinary income; qualified dividends that meet certain requirements are taxed at a lower capital gains rate. These tax rates are 0%, 15% or 20%, depending on the investor’s income bracket. Qualifying dividends on common stock are generally those held for at least 61 days. In most cases, you will pay a lower tax rate on qualified dividends if you hold the stock for more than two months.

Invest part of cash reserves in I bonds

You can purchase up to $10,000 worth of I-Bonds per year electronically, and up to $5,000 in paper I-Bonds from your tax refund. “You can add them to your portfolio,” Lee said.

The inflation rate resets every six months, and the initial interest rate on new Series I savings bonds purchased through October 2022 is 9.62%. Current rates will apply for six months after purchase. For example, according to TreasuryDirect.gov, if you purchased the I-Bond on July 1, 2022, the 9.62% interest rate would apply on December 31, 2022.

Interest is compounded semi-annually. The IRS requires you to report interest income in the year you redeemed the bond.

Read more about I Bonds

Open a High Yield Savings Account

Put your emergency fund in a high-yield savings account. If you have a fairly long time horizon, it’s worth it, Feldman said. “If you’re 65, you still have a time span,” he said.

Rather than jumping from bank to bank, Lee recommends making your cash “accessible and convenient.” “If you have $100,000 in cash, put it in a high-yield savings account,” he said. Some customers “love the security” of it, he said. “It helps them sleep at night.” Find rates here.

– Harriet Edson


(End) Dow Jones Newswires

09-17-22 1636ET

Copyright (c) 2022 Dow Jones & Company, Inc.

Leave a Comment

Your email address will not be published.