Retiring Soon? This is How You Should Invest

Posted by under Investing, Personal Finance . Updated: September 5, 2017

The average life expectancy of Filipinos is currently at 71 years old. This means that if you retire at 60, then your retirement fund should be able to sustain you for at least 11 years.

And it could be more, as new advancements in fitness, nutrition, and medicine are making people healthier and live longer.

Close family ties are part of our culture. And it’s a double-edged sword for retirees to become dependent on their children or relatives when they reach their senior years.

While the financial support provides a good amount of security, they are however, taking away a portion of their loved ones’ income. Money that could otherwise be used for building their own retirement fund.

Thus, financial planning for retirement is an important task that all retirees must do. Especially if they don’t want to become a burden to their family. This includes making smart money management and investing decisions. This will ensure that their golden years remain as bright as possible.

retirement-planning

List your assets and liabilities

The starting point for retirement investing is determining what you currently have. This means making an inventory of all your cash and the current value of all your assets. Keep in mind all the investments and properties that you’ve accumulated during your working years.

Moreover, you should ideally have no debts or loans upon retirement. But if you do, then give it important consideration in your monthly budget, so you can pay and eliminate them as a liability.

Study your retirement cashflow

You may have received a lump sum for your retirement and wondering if that amount will last your lifetime. Instead of worrying, my recommendation is to focus on creating a guaranteed income source for your day-to-day expenses.

Determine how much money you’re expected to receive as pension benefits from Social Security and other sources. Check your insurance investment policies and ask for their cash value and inquire if they can, or if you’re already eligible, to receive annuity payments.

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Take stock of your health

During retirement, the biggest threat to your finances is medical problems.

Hopefully, you’ve managed to live a healthy lifestyle up to this point. If not, then it’s certainly time to change your bad habits and make better food choices and become physically active.

Moreover, consider your family history and determine the diseases that you have a genetic disposition to. Use this information to calculate the possible added costs to your monthly budget. Specifically in case you start taking maintenance medicine and require medical procedures.

Live within your guaranteed income

Hopefully, you can comfortably live off your guaranteed income.

If so, then you can use the rest of your assets to generate income for non-necessities, such as travel and entertainment. You can also afford to invest your cash in higher-risk instruments. If not, then your focus should be in creating additional income.

The easiest would be to do some freelance work. You can do consultancy jobs or start a low-capital business. Not only will this augment your budget, but it will also keep you mentally active.

If you have a hobby, such as photography or baking, then you can likewise find ways to make money off your passion. This allows you to not only enjoy doing these activities that you like, but also to earn from it. And possibly, make it self-sustaining as well.

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Lastly, if your financial capacity allows it, you can also invest on real estate and earn from rental income.

Do bucket investing

With your present needs properly met by your cashflow, it’s now time to invest.

Financial planning at this stage is similar to how you should create your portfolio during your younger years. The main difference would only be to avoid putting too much money on high-risk and volatile investments.

The bucket investing approach is a great way to plan and determine where and how much you should invest during retirement.

This strategy was first proposed by financial-planning guru Harold Evensky. He recommends that you should segment your portfolio based on when you expect to need your money.

Short-term (Bucket 1)
The first bucket is for your near-term needs and should be parked in a savings account, time deposits, and in low-risk funds. The money here should be enough to cover for your expenses in the next 2-3 years.

Medium-term (Bucket 2)
The second bucket is for your intermediate-term needs and your investment choices here are government securities, corporate bonds, and funds with low-to-moderate risk profiles. The money here is meant to be used after 3-7 years.

Long-term (Bucket 3)
The last bucket is for your far-future needs and your investment choices here are dividend stocks, index funds, balanced funds, and exchange-traded funds. Whatever’s left in your cash after filling up Bucket 2 should be parked here.

How bucket investing works

Retirees should first fill up Bucket 1, and then proceed to the second and then third buckets.

When Bucket 1 starts to run low, they will replenish it by redeeming an appropriate amount of investments from Bucket 2. They can sell some of their government securities, for example, and put them in their savings account.

The process continues until Bucket 2 starts to run low. At this point, it will then be replenished by getting a portion of Bucket 3 and reinvesting them towards the investments in Bucket 2.

Normally, the transfers and portfolio rebalancing are done once a year. Moreover, any extra cash or income that you might receive during retirement is always used to replenish Bucket 1, so that there’s less need to reallocate investments from one bucket to another.

retirement-investment

Retirement doesn’t mean you stop working

A lot of people see retirement as a time when they finally stop working. The time when they can do whatever they want, whenever they want.

But have you noticed that most billionaires, despite their immense wealth, still continue working?

I believe it’s not because they’re workaholics, but because they work brings them a sense of purpose and it’s a source of self-fulfillment.

That’s why, in my opinion, the better way to spend your retirement years is to remain active. You should continuously learn, and to work on new projects. Do try to avoid too much stress, but it’s important to keep challenging yourself.

If you’re retiring soon, or has already retired, I hope you found these tips helpful.

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3 Responses to “Retiring Soon? This is How You Should Invest”


  1. Lolong says:

    Hi Fitz, – When will be your next webinar about retirement?

  2. You really give some good actionable advice here that anyone can follow and apply , and I hope people will see the need for this and do the work, thanks for this

  3. Julius S. Algabre says:

    Great livable advice for us retiring & soon to be retiring. Thanks Fritz for sharing. Do you still frequent ANC’s On the Money segment? Hope so.
    Really appreciate your practical insights…spl on retirement does not mean you stop working.

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