As year-end approaches, many retirees are faced with an array of financial choices that can benefit their portfolio this year and into next. Given the current state of the economy, many retirees are paralyzed by their fear, and subsequently are ignoring their portfolios. This is the biggest financial mistake I see retirees make – and it’s potentially creating bigger financial problems down the line which could be resolved by implementing some basic strategies.
Here are the three things every retiree needs to examine in their portfolio before the year’s end:
1. If taking income, it needs to be guaranteed. The three primary sources of guaranteed retirement income are social security, annuity income and pension benefits. No matter how safe something appears, if it’s not guaranteed, it does not count. For example, Lehman Brothers was considered so safe that banks, institutional investors, and individuals throughout the country invested in their bonds as a “safe haven” where they could earn a little bit extra interest over Government bonds. We saw what happened there, as Lehman’s collapse left investors holding the bag. Insurance companies, on the other hand, offer fixed annuities. They guarantee your principal and pay you interest each year. Fixed annuities are guaranteed by the State Guarantee Association, which is very similar to FDIC, but administered through the States.
2.Eliminate unnecessary portfolio risk. Why take risk if you don’t have to? So many retirees are hanging on to their 401(k) hoping to recoup losses they’ve experienced over the past few years. At this stage of their lives, this is a high-risk strategy. The money can be used to invest in “safer” avenues.