by D. Victor

Created on: July 07, 2009   Last Updated: March 08, 2010

With longer retirement periods exacerbating retirement risks, it is increasingly important to invest in capital growth options during that period. Investing after you retire is even more important since retirement is more than waiting to expire. Although the emphasis on portfolio diversification may shift from fund accumulation to fund conservation, there are a number of reasons to maintain capital growth as part of that portfolio.

i) Retirement periods are longer

ii) Address existing shortfalls

iii) Combat retirement risks

iv) Creat a buffer for contingent expenses

v) Increase income

i) Retirement periods are longer

Life expectancy is on the rise and the average retirement age is dropping. Instead of using 15 or 20 years as your expected retirement period, you should cater for at least 30 years to be safe. According to some statistics, depending on how early you retire, you can live as much as 36 golden years! 25 to 36 years is certainly a long period. To be ultra-conservative in a longer period increases your longevity risk - the risk that you live longer than the period for which you prepared financially.

ii) Address existing retirement shortfalls

Several retirees begin their retirement period with less savings than they need. It is truly difficult to conserve your funds when you have little to play with. However, through investing and diversifying your portfolio, you stand a better chance of mitigating the effects of a retirement shortfall. Being too conservative will deny you the opportunity to address your inadequate savings or income.

iii) Combat risks

It is natural for some retirees to protect retirement funds from potential losses associated with investing. However, avoiding investing altogether exposes you to inflation risk and purchasing power risk. Other risks that failing to invest properly may indirectly cause include income risks and spending risks. An unhealthy aversion from loss will actually cause you to incur the loss of the real value of your savings and place additional pressure on your golden years.

iv) Create a buffer for contingent expenses

Investing not only creates a better income stream for you in retirement, but can help you savings to accumulate. This way, you can have a buffer against medical expenses that may arise when you least expect it. Given the enormous expense associated with critical illness and the limited coverage offered to senior citizens, you could never have too much of a buffer for your retirement savings.

v) Increase retirement income

Investing can increase your actual and potential retirement income. On one hand, you can actual use returns on investment (like dividends) for income purposes. On the other hand, accelerated accumulation can increase your retirement fund which can be used to generate an increase in future income. Whether you choose to reinvest or claim income from investment, the boost to current or future income can reduce income and spending risks associated with retirement.

Greater longevity primarily precipitates the need for investing throughout retirement. However, you may not have to invest as much as 40% or 60% of your portfolio. The figure could be as low as 20%. All the basic rules of proper investing and financial prudence apply. Ultimately, the most important part of investing during retirement is maintaining a diversified portfolio.

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