By Harriet Edelson
When stock market volatility and inflation persist, smart retirees look for ways to get the most out of their money. It’s not easy, but small steps can make a difference and prevent you from making the wrong moves at unpredictable times.
“Even when the seas are rough, there are always little little things you can do,” says certified financial planner Andrew Feldman, founder of Chicago-based AJ Feldman Financial.
In fact, the simplest way to adapt is to spend less and earn more – if you can. However, not everyone agrees on what exactly is best or what will be comfortable in turbulent times. Some believe it is wise to find income wherever you can while others advise cutting back on your spending. A balance between the two may work well. It all depends on your assets, your income, and the cost of maintaining your lifestyle.
“Rather than trying to squeeze more returns in a period like this, it’s better to cut back on your expenses,” says Daniel Lee, director of financial planning and advice at BrightPlan, a financial wellness benefits provider based in San Jose, California.
Others advise increasing your income. “You’re worried about your steady income, do some advisory work,” says Roger Young, vice president, director of retirement insights, T.V. Roe Price. “Find a side party. Keep a hobby on the side. There are several reasons to do some work in retirement.”
However, not everyone is able or inclined to return to work after retirement. Whichever camp you are in, finding ways to increase your income can make a difference. If nothing else, it can create a sense of control during a period that may seem chaotic.
As behavioral economists and financial planners know, emotions can play a role in financial decisions.
“People feel compelled to take action,” says certified financial planner Brent Nezer, founder of Watts Next With Money. However, he says, “standing in place may be a step in and of itself.”
When the stock market fluctuates and inflation hits a 40-year high, retirees may react too quickly rather than carefully assess their current situation before acting. Keep a long-term perspective, says T. Raw Price
guy. “If you have a good plan, you probably don’t need to overreact,” he says.
First, make sure you have your own emergency fund/cash reserve. If you have cash to cover at least a year of your expenses, you can start taking some small steps to improve your financial position as inflation continues and market volatility continues:
Consider buying dividend-paying stocks
You may already have some dividend-paying stocks in your (hopefully) balanced portfolio. Additionally, you may have some stock in companies that during the pandemic have stopped paying dividends. While some companies resumed paying dividends, others did not.
Read: These dividend stocks make at least 5% and have plenty of room for increased payouts
“It’s nice to have a mix of dividend-paying stocks,” Lee says. If the stock price is relatively low now, and it’s paying a dividend, it’s worth looking into. If you have some extra cash that you’d like to invest, “you can turn to dividend-paying stocks for a portion of your money,” Young says. If the dividend is in the 2% to 4% range, and the stock price drops, buying low “is definitely a reasonable strategy,” he says. However, if the yield is “too high,” says Young, beware, and think about why it is.
If you’re looking for income, you might want to pay your earnings back to you rather than reinvest them, says Neiser, who was also chair of the Consumer Advisory Board at the Consumer Financial Protection Bureau. “It’s a way to get a quarterly income,” he says. For example, let’s say you retired from your long-term business but deferred getting Social Security until you’re 70. Dividends can be a way to bridge your income between the time you retire and the day you start receiving Social Security payments.
Additionally, consider the tax implications of dividend-paying stocks. According to the IRS, the most common type of distribution from a company is a dividend, which is paid out of a company’s earnings and dividends. Dividends are categorized as either ordinary or qualified. Ordinary stock dividends are taxed as ordinary income; Qualified dividends, which meet certain requirements, are taxed at low capital gain rates. These rates are 0%, 15% or 20%, and depend on the investor’s income bracket. Typically, eligible dividends for common stock are those that have been held for at least 61 days. In most cases, if you’ve held inventory for more than two months, you’ll pay a lower qualified dividend tax rate.
Invest some of your cash reserves in i-bonds
You can buy up to $10,000 of I bonds electronically each year, plus up to $5,000 of paper I bonds from tax refunds. “You can add it to your portfolio,” he tells me.
The inflation rate is reset every six months, and the initial rate is 9.62% for new Series 1 savings bonds purchased through October 2022. The current rate will apply for six months after purchase. For example, if you purchased I bonds on July 1, 2022, the 9.62% rate will apply through December 31, 2022, according to TreasuryDirect.gov.
Interest accrues semi-annually. The IRS requires you to report interest income for the year you redeemed the bond.
Read more about bonds
Open a high yield savings account
Keep your emergency fund in a high-yield savings account. If you have a large time horizon, it may be worth it, says Feldman. “If you’re 65, you still have a time horizon,” he says.
Lee recommends keeping your money “accessible and convenient,” rather than jumping from one bank to another. “If you have $100,000 in cash, put it into a high-yield savings account,” he says. He says some customers “love its security”. It helps them sleep at night. Find interest rates here.
– Harriet Edelson
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