Once a person retired, should they continue to invest additional funds? I don’t mean “stay invested,” because I believe retirees should stay invested to a large degree. And this question is not about selling and everything and going to cash. But should we put new money into investments?
When a person is in the workforce, the standard investing process is to take some saved funds, and buy something to invest in. Once a person is retired, they no longer have their steady paycheck coming in. Perhaps by the time they retire they have some dividends, interest, Social Security, pension if they are lucky, money from IRAs, or other income. Should they continue to invest even when retired?
My Question, Too
I have grappled with this question. Once we retire, we usually have less income. We have less available money to invest. Some of our expenses decline, but the need for cash to pay bills and buy food remains. So should we continue to put “new” money into investments?
All of these conditions are mine too. So it is personal for me. Because I no longer have a standard paycheck, I have less available cash than I did when I was working. As a retired person, conserving cash for bills and expenses is what I must do. So my opportunity for making new or increased investments is significantly reduced.
Not All Answers Are Equal
Now the truth will be told! The answer to all good questions is: It depends.
It depends on many factors.
Of course, no one should invest if they expect to need the money within a short period of time. So, what would be considered a “short period of time”? To that too: It Depends…
Once in retirement, financial conservatism should normally be the rule. No one wants to end up with insufficient funds. How one spends and how much one spends is so dependent on a full variety of personal factors. Some factors are: size of assets, expenses both current and anticipated, expected income (Social Security, pensions, dividends, etc), health and life expectancy, and so on.
What Is Enough?
Do retirees need to keep investing? That is an existential question: it depends on who the person is. If the person is someone who sees retirement as a means to an end, then perhaps they will stop investing more money. But the world is full of wealthy people who continue to invest even after retired because that is who they are. They invested prior to retirement, so they continue even into retirement. They don’t stop being who they are once they retire.
Where’s Warren?
Let’s look at Warren Buffett. As of this writing he is 88 years old. He is one of the wealthiest people in the world. He certainly does not need more money. But assumedly he continues for two reasons. One, that is who he is: he invested his entire life and that is what he knows, so that is what he does. Two, he still sits as the head of Berkshire Hathaway, and so he retains control of it, along with his partner Charles Munger. So I could be sure when I say that Warren is not retired.
Hand One
Part of me says I should save and save again. Namely, one feeling is that I should save all available cash.
I have some very modest income from investments. Since I am primarily a dividend investor, I do have some dividend income. I am old enough so I do get Social Security. There is my two-day-a-month employment. I try to keep my expenses in check. All this means I am (hopefully) a typical retiree.
For some companies, I have the dividends reinvested to purchase additional shares in that same company. But for some companies I choose to get the dividends in cash. And I have set up some automated monthly purchases where some of the dividend income is used to purchase shares in other companies. This all happens now without much intervention.
Who Is Average?
If we assume a normal twenty to twenty-five year retirement, will the retiree’s assets at retirement be sufficient for the entire time? Will they have enough growth and compounding to provide for a retirement, given that the principal assets are being reduced each year to fund the retiree’s life?
The Present Situation
Occasionally an unexpected windfall occurs. In one recent case, a company who shares I owned was purchased by another company for cash. So I received a check. After setting aside some of the money for taxes, I was left with the question: what to do with this cash.
I was severely tempted to do nothing. Just hold the cash. You never know when you need cash. But I suspected that my current savings and emergency fund were sufficient.
The future is unknown. But assuming that my retirement lasts a long time (one can only hope), and assuming inflation continues (a reasonable assumption), I will need funds in the years ahead. My current situation is such that my dividend income does not cover all my expenses. And perhaps never will. While my dividend income generally increases each year because of increased dividend payouts, it is never a steady path: some companies may cut dividends, some get purchased or otherwise no longer provide income. But I realize that if I continue to increase investments, I could cover more of my expenses as time goes by. Or at least not lose too much ground in the face of future inflation.
So while new investments slow down when retired, I think it likely best to continue to invest, at least for now. I will invest at a slower rate than when I was working full time, but continue nonetheless.
What do you think about investing once retired? Send a comment here: Contact.
The map “Le Canada, or Nouvelle France” was created by Nicolas Sanson, engraved by Jean Somer, published by Pierre Mariette in Paris in 1656. It was the first map to draw and label all five Great Lakes in recognizable form. Lake Ontario bears an alternate name of Lac de St. Louys, and Erie also bears the alternate name ‘du Chat.’ Lake Huron is labeled Karegnon and Lake Michigan is known as Lac de Puans. Explorers had not yet reached the ends of the Great Lakes – Michigan and Superior both are open ended to the West.
The map “A New Chart of the Coast of New England, Nova Scotia, New France or Canada. with the Islands of New Foundld, Cape Breton, St. John’s &c” was created by By Monsr. N. Bellin. Published in The Gentleman’s Magazine, London, 1746.
The map of “The British Governments in North America” was published in The Gentleman’s Magazine, London, 1763.
Maps courtesy Michigan State University.
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