7 Ways To Build Wealth in Your 70s
Retirement is generally not considered a time to save or make money — you’ve already saved your whole life to get there, after all. Retirement is the time to spend that money and enjoy your golden years as much as you can, traveling, pursuing your hobbies and spending time with your family.
On the other hand, you may want to leave a financial legacy, like an inheritance for your heirs or a final charitable donation. Or maybe you’re worried you’ll outlive the savings that you currently have. To provide you with a plan, GOBankingRates spoke to experts to find out how you can keep building wealth, even in your 70s.
Related Reading: 6 Ways To Build Wealth in Your 60s
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Manage Your Spending
This is a good idea at any age, but once you lose your main source of income, carefully managing your spending becomes even more critical, especially if you want to continue building wealth. In your 70s you’ll be receiving Social Security benefits as well as required minimum distributions (RMDs) from retirement accounts like 401(k)s. Many people also need to withdraw from their savings to supplement their income in retirement, but this is something you’ll need to avoid. If Social Security and RMDs aren’t enough, you may need to make some tough decisions on what expenses you can eliminate.
See More: Cutting Expenses in Retirement: 9 Things To Downsize (That Aren’t Your Home)
Buy Real Estate
The older you are, the less risk you can tolerate in your investments — there’s simply less time to recover from volatility and market drawdowns. Taylor Kovar, certified financial planner and the founder and CEO of 11 Financial, said that focusing on capital preservation and steady growth becomes crucial in your 70s. That means that you’ll need to carefully select the sort of assets you are invested in.
“For retirees in their 70s, real estate investment can be an attractive option. Consider downsizing to a smaller, more manageable home and investing the proceeds into rental properties or real estate investment trusts (REITs). Real estate provides a steady stream of income and can serve as a hedge against inflation,” Kovar said.
Invest In Dividend Stocks
Kovar also recommended dividend stocks as an investment option in your 70s. Although stocks generally are riskier and more volatile than more conservative assets, dividend stocks tend to be less volatile and lower risk. That’s because dividend-paying companies are usually large and financially strong — a business needs to have a solid balance sheet and predictable cash flows in order to maintain a dividend. In particular, look for companies with a long history of not just paying a dividend but increasing the payment year over year.
Invest In Bonds
The last investment vehicle Kovar recommended is bonds. Bonds are debt instruments that companies issue to raise capital. Bondholders pay the face value for a bond and receive regular interest payments for the life of the bond. When the bond reaches maturity, the face value is returned. Most bonds are considered to be low risk — defaulting on bonds is an extremely bad look for a company so it’s something they will avoid at all costs.
Build a CD Ladder
Certificates of deposit, or CDs, are extremely low risk because they are insured by the FDIC, just like checking and savings accounts. Like bonds, CDs pay depositors predictable interest payments on a regular basis, and return the initial deposit amount after the end of a specific time period. Most banks offer a variety of lengths which can be as short as a few months or as long as 10 years.
The main drawback to CDs is that unlike stocks or bonds, they can’t be sold in public markets. That means you can’t access your deposit no matter how much you might need it. One way to get around this is by using a strategy known as a CD ladder. “This involves purchasing CDs with varying maturity dates, which can provide you with regular, predictable income and access to portions of your capital at regular intervals, potentially at higher interest rates over time,” said Scott Lieberman, founder of Touchdown Money.
Optimize Your Tax Strategy
Reducing your tax liability is a great way to increase your income in retirement, potentially allowing you to save even more. “The way Social Security benefits are taxed can lead to high marginal tax rates, even for those retirees with modest withdrawals. For example, a couple on Social Security with $40,000 in additional 401(k) or IRA withdrawals will find themselves in a marginal federal tax rate of 22.2%,” said Matt Hylland, investment advisor at Arnold and Mote Wealth Management.
The strategy that’s best for you will be totally dependent on the specifics of your financial situation. Roth conversions for individual retirement accounts are one popular strategy. Charitable giving can also significantly reduce your tax burden.
See a Financial Advisor
Retirement is complicated enough, and funding it successfully while still building wealth is even more of a challenge. You don’t have to go it alone — a retirement advisor or financial planner can be a huge asset in helping you plan out your strategies for spending, saving, investing and managing your taxes. A professional’s specialized knowledge will help you make sure you’re set up to see your net worth keep growing even well into retirement.
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This article originally appeared on GOBankingRates.com: 7 Ways To Build Wealth in Your 70s
