Investment decisions can become especially costly once a person approaches retirement due to a shortened investment time horizon. There are certain investment options for a retired person that can help that individual maximize the benefits already earned in a pension. Also, there are strategies that a retiree can use in an attempt to produce additional income from the financial markets even amid the culmination of a career.
For those who have worked their entire lives saving for retirement in a pension fund, there are options when it comes time to cash in on those benefits. The assets can be received in annuity style distributions or paid in one lump sum. Choosing a one-time payment can have hefty tax consequences. The tax burden can be postponed by transferring pension benefits into an individual retirement account (IRA). Once an IRA is opened, a retired person can control the investments and make withdrawals that are taxed as regular income.
Generally, retirees do not take excessive chances with finances. Once a career is over, an investment portfolio can be someone's sole income source. Nonetheless, wealthy individuals can potentially amplify returns by allocating money to hedge funds, which are alternative investment vehicles. The fees are higher than what more traditional investment funds charge, but the managers are paid to deliver returns that are considerably higher than normal. In 2011, Colorado's Fire and Police Pension Association, which is responsible for members facing retirement, dedicated 11 percent of its assets to hedge funds for the first time, according to "The Wall Street Journal."
A retired person might also prefer to take a more conservative approach with assets. A strategy can be to protect assets while still securing some yield, or return. Placing money in a savings account or a money market account with a retail bank is deemed safe, but assets will grow slowly. A more productive approach may be to invest in Treasuries, or government bonds, and equities that are not historically volatile, but also tend to pay dividends, such as utility stocks.
Someone who has retired should weigh some practical circumstances, including one's health, upon making investment decisions. For instance, investing in the stock market is likely to introduce some volatility and a person may need to withstand different market cycles before reaping rewards. Diversifying an investment portfolio across stocks and bonds can produce desired returns while safeguarding some assets. One strategy is to allocate up to 66 percent of investment capital to stocks with the balance of funds directed to fixed income, or bond securities.
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