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8 Best Retirement Investments: What to Invest in Before and During Retirement

Last Updated: July 13, 2021
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Looking for the best retirement investments to fund your golden years? You’re in the right place. Here’s a review of eight investment assets and accounts suitable for retirement planners and retirees, along with guidance on how much money you actually need to retire.


How much money do you need for retirement?

How much money do you need to retire? That number is different for everyone, and it hinges on the income required to pay your bills after you leave the workforce.

One school of thought argues that your cost of living should be lower in retirement than in your working years. That may have been true 10 or 20 years ago, but it’s less certain today. The big unknown for retirees is the cost of healthcare, which tends to rise faster than general inflation.

To be conservative, aim to replace 100% of your working income in retirement. Social Security usually covers 30% to 40% of that, which leaves 60% to 70% to fund from savings, annuities, pensions, and other sources. If it’s all coming from your savings, calculate 70% of your income today, then multiply it by 25. The answer is your target savings balance, assuming you stick to an annual withdrawal rate of 4%. If you make $75,000 a year, that equates to more than $1.3 million.


How to invest for retirement

Most people can’t whip up a seven-figure savings balance without some form of investing. The good news is, you have options. Certain asset classes and account types are particularly well-suited for retirement savers. Here are five of them.

1.      Cash value life insurance

Cash value life insurance is a savings account and estate planning tool rolled into one. Here’s how it works. Part of your premium payments goes into an account where it grows in value over time. Depending on the type of insurance, the cash might earn a fixed or variable interest rate. Or, it might be invested in subaccounts of your choosing. Subaccounts are like mutual funds, but they’re managed by your insurer. Any interest or investment earnings in your cash account are tax-deferred.

You can borrow against your cash balance. Some policies even allow you to withdraw the funds directly. You can also sell the policy outright for a larger sum in a life settlement.

2.      Stocks and bonds

Stocks and bonds are a nice one-two punch for retirement savers. Stocks offer growth potential, while bonds provide stability. You can combine them to build a portfolio that matches your risk tolerance and your retirement timeline.

Young investors benefit from a stock-heavy portfolio with high growth potential. As you get older, it’s smart to shift to a more balanced mix of stocks and bonds. That lessens the volatility of your portfolio — helping to protect the money you’ve worked so hard to save.

3.      Mutual funds and exchange-traded funds

Picking stocks is hard work and time-intensive. Mutual funds and exchange-traded funds offer an easier and more diversified alternative. Low-fee, broad-based index funds, such as Vanguard’s 500 Index Fund (VOO) or iShares Core US Aggregate Bond ETF (AGG), provide easy access to market-level performance.

The nice thing about funds is that you can build a well-rounded portfolio with a handful of positions. If you invested directly in stocks, you’d want at least 20 of them so you’re not overly dependent on a single company’s performance.

4.      401(k) plan

Your workplace 401(k) may be the easiest place for you to invest for retirement. Much of the process happens automatically. The money is scooped from your paycheck and deployed into your investment selections. You get an immediate tax break, which lowers the out-of-pocket cost of saving. You may also get free employer-matching contributions. Your investment earnings are tax-deferred, though you will pay income taxes on your retirement withdrawals.

Your 401(k) should offer a menu of 10 or 20 mutual funds with varying investment approaches. You can mix and match these funds to get the diversification you want. Alternatively, you can invest all your contributions into a target-date fund, which is designed to be the sole position in your retirement portfolio.

5.      IRAs

IRAs come in two varieties: traditional and Roth. The traditional IRA has the same tax treatment as your 401(k). Your contributions are tax-deductible, and your withdrawals are taxable. The Roth IRA takes the opposite approach — you get no tax deduction for your contributions, but your retirement withdrawals are tax-free. Both IRAs provide tax-deferred investment growth.

You can open an IRA with a brokerage like Schwab or Fidelity. These accounts often have low or no annual maintenance fees, which is rarely the case with a 401(k). Many IRAs also have a wider range of investment options vs. a 401(k). Some allow you to invest in individual stocks and bonds as well as funds.


Investing for retirees

As you near or settle into retirement, you’ll want to adjust your investing approach. The goal will be to minimize unnecessary fluctuations in your wealth due to financial market volatility. Life settlements, income annuities, and rental properties are three investment options that don’t rise and fall with financial market trends.

1.      Life settlements

A life settlement is the legal sale of your life insurance policy to an investor. So, it isn’t an asset you’d buy — but it is a way to raise cash in your senior years. Your life insurance could be worth 20% to 60% of the policy’s stated death benefit. That could be a five- or six-figure cash windfall, depending on the size of your policy.

Many types of life insurance qualify for a life settlement. If you’re interested in exploring this as an option, contact the Harbor Life Settlements team to find out what your policy is worth.

2.      Income annuities

An annuity is a contract between you and an insurance company. You pay an amount upfront, either at once or in payments, and you get a stream of income in return. As with cash value life insurance, your funds are invested, and all earnings are tax deferred. You do select the investment type when you buy the annuity. You’d also choose how to structure your annuity income — you can get paid out for the rest of your life or for a set duration.

Annuity income is taxable as ordinary income.

3.      Real estate for rentals

Rental property has long been a preferred investment vehicle for retirees. Real property generates returns in two ways. You earn rents from your tenants every month, and the property value appreciates over time. That appreciation usually follows a more linear trajectory vs. stocks, bonds, and mutual funds — a quality seniors love. When you tire of being a landlord, you can hopefully sell the property at a profit.


Why life insurance is one of the best investments for retirement

Life insurance as a retirement investment has its critics. The issue is that life insurance often doesn’t have the same return potential as stocks and equity mutual funds. But there is more to the story. For one, many prospective retirees find it easier to pay their life insurance bill than to save. Those who keep paying their premiums can amass tens of thousands in accessible cash value, even as they struggle to grow the balance in their retirement account.

Two, life insurance is versatile. You may have purchased the coverage initially to create a tax-free inheritance. But if life throws you a curve ball, you can sell or borrow against your insurance and use the funds yourself. Maybe you need to raise cash for unexpected medical bills. Or perhaps a stock market downturn has you worried about the longevity of your savings. In that case, you could pause your savings withdrawals and use the value in your life insurance to pay the bills temporarily.

Life insurance can be a solid financial back-up plan in many other scenarios, too. That has value because life is unpredictable. If you have cash value life insurance today, make sure you understand its full potential and the role it can play in your retirement readiness plan.

If you’re interested in selling your life insurance through a life settlement, get a free policy estimate from Harbor Life Settlements today!

Find out how much your policy is worth.

Catherine Brock

Catherine Brock

Catherine Brock is a personal finance writer who's been featured in The Motley Fool, Refinery29, and has made appearances on ABC7 Chicago, FOX2News St. Louis, KCAL9 Los Angeles, Fox19 Cincinnati, WGN TV Chicago and WCPO TV Cincinnati. When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

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