Where To Put Retirement Money After Retirement - Or Close To It!

Introduction

If you are approaching retirement and you are curious about how to invest your retirement money after retirement then you need to be a student of history and learn this lesson well. With 10,000 baby boomers turning 65 each day then there ought to be a bunch of you out there who need to read and heed this information.

The lessons of 2008 still speak loudly to the need to preserve capital in your final working years!

According to the Employee Research Benefit Institute something pretty disastrous happened just prior to the financial collapse of 2008. You see, the ERBI discovered that Americans who were between the ages of 56 and 65 who participated in a 401 k account were over invested in American stocks.

I know what you may be thinking. You are probably asking yourself "Isn't that what a 401 k account is for, to invest in stocks?" And yes those accounts are marvelous platforms to invest in the stock market but not when you are nearing the final 10 years prior to retirement and then the years following retirement.

You see, Americans who were in the 56 to 65 age range in 2008 had nearly 70% of their accounts invested in stocks. That represents almost 30% more risk then they should have exposed themselves to at that time of their working lives. The result, as we all know, was a blood bath in retirement savings losses.

Workers who had worked and saved for 20 years or more lost 25% of their account in the last two quarters of 08. Many lost 40% to 50% of their entire portfolio! This kind of calamity could have been averted by reducing risk and exposure to the stock market.

What could they have done?

So just how should a nearly retired or newly retired person be investing their retirement savings? Well there is a formula that is pretty much fool proof and here it is...you should subtract your age from 100 and that number represents the maximum percentage of your account that should be in stocks.

For example, if you are nearing retirement and are 62 years old then you should have no more then 38% of your savings in the market. If you are 70 and retired then your account should be only 30% exposed.

I would go as far to say that I think that 30% is too aggressive for a 70 year old but at the end of the day that is a decision you and I will have to make for ourselves.

Why stay in stocks at all?

You and I both know that people are living longer today than at any point in American history. Once you reach 65 your chances of reaching 80 and even 90 dramatically increase. Back when this formula was created people were not living nearly as long. But today we need to keep our toes dipped in the stock market to take advantage of the growth potential to ensure our funds will last as long as we feel necessary.

Conclusion

It's easy to see that many Americans could have drastically reduced their losses if they would have followed this rule. The typical worker who scrimped and saved for 20 years might have only lost 10 to 12% instead of the average 25%. While that number looks innocent enough on paper it mean't hundreds of thousands of dollars to many investors. The collapse of 2008 erased 2.6 trillion dollars from retirement accounts. The exposure to the market was disastrous for older workers and retirees.

Now if you are in your 20's or 30's you need to keep plowing that money into your IRA's, 401k or 403b and just hang on tight. But if you are in the red zone of retirement or already there then this old rule and the lessons of history should be your guide.

By the way, I wrote a short post on how to use a simple online calculator to determine how much to withdraw from your 401k on a monthly basis. You can check it out here "How Much Can I Withdraw From My 401k - The 4% Rule Reconsidered".

Invest your retirement money in fixed income funds, money markets, bonds etc. Seek capital preservation over aggressive growth. Take the anxiety out of your final working years!