Reinvestment: Why Should Investment Strategies Change Post-Retirement?

Investment is a pre-requisite for everyone be it a salaried individual, a wage earner or a business person. Investment helps grow your wealth and enhances your affordability thus providing a good standard of living. A good standard of living doesn’t only require you to live in a well-built home or wear good clothes but access to proper healthcare, proper nutritious food and a cover for expenses during an emergency. The parameters for these investments as well as the considerations change during the post-retirement phase as your income stream stops and longevity becomes more important than the growth. Risk tolerance also decreases therefore you should make careful and well-informed decisions. Where pre-retirement investment should focus on growth, post-retirement must focus on preservation. There are other factors as well that a person to consider while reinvesting their corpus.

Here are those considerations:

Shift From Growth To Income

Pre-retirement focuses primarily on generating an income and investment requires you to grow your wealth. A young investor who is in the growth stage of life can take higher risks and make investments more freely. The market fluctuations can be absorbed more easily as they have the time to do so.

In post-retirement, an investor’s focus is retaining or preserving their corpus and making investments that come with lesser amounts of risks. The retired investor has a lesser risk appetite as they do not have the time or funds to absorb that extra risk as the corpus is put in danger. The market fluctuations carry more risks and are more difficult to manage.

Changed Withdrawal Strategy

Pre-retirement does not require a withdrawal strategy as there is steady income and the focus is to grow that wealth.

Post-retirement withdrawal plans are important to establish a stable income to cover daily expenses while also maintaining an emergency fund. It is required for investments to be liquid to cover expenses and also give returns.

Inflation Protection

In the investing period of life, inflation can be quickly recovered from as there is no lack of basic means which is a steady income and a high-risk tolerance. While making these investments and forming a corpus,  inflation must be included to avoid any shortage of funds. Post-retirement investments need to be made more considerably as risk capacity is low and the steady income through investment can fall short if the inflation is higher than expected forcing the retired individual to work.