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Here are 7 Investments I Will Sell Before I Retire
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Retirement can be a new and exciting chapter in life, but also stressful, as retirees transition from a fixed salary to savings. To help ease financial burdens, many turn their portfolios into cash or other forms of capital by selling less desirable securities. investments.
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To strategize on the smartest way to supplement income by liquidating investment options, GOBankingRates spoke with experienced financial advisors who shared their valuable insights into which investments to sell in retirement—and the reasoning behind your recommendations.
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Municipal Titles
“A municipal bond is a debt instrument issued by state and local governments as collateral to finance construction projects in a community,” said Michael Norber, portfolio finance advisor at The Snyder/Balducci Group.
“In return, an investor receives an interest payment once or twice a year until their original principal investment is repaid. The main component of municipal bonds is that the interest earned is exempt from federal income taxes and, if the bond is within the investor’s state, also exempt from state taxes.”
He added: “In a retirement account, where funds grow tax-free, the benefit of tax-free income is unnecessary. Furthermore, the long-term returns of municipal bonds are traditionally lower than those of taxable bonds due to this exemption, and therefore they do not produce a high enough yield to justify their place in a retirement portfolio.”
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Real estate
Real estate is another investment Norber recommended selling as a retiree.
“Real estate doesn’t fit into a retiree’s plan because it typically requires a fair amount of maintenance and a large down payment, creating a barrier to entry,” Norber said.
“Additionally, there is an inherent risk that the value of a property may decline over time and/or underperform even a conservative investment portfolio that is expected to grow between 4% and 6% per year,” he said .
“Finally, it is certainly not advisable to take out a mortgage or any loan to invest your retirement savings in real estate. With interest rates at their current historically high levels, a retiree living on a fixed budget could end up paying more than their means to finance this transaction,” he concluded.
High-risk or volatile stocks
David Reyes, founder and chief investment officer of Reyes Financial Architecture, suggested ditching high-risk stocks in retirement because it’s too “bleak… You know those stocks that can shoot up like a rocket one day and crash the next? It’s best to sell them to protect your nest egg from unnecessary roller coaster rides.
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Speculative ventures
Another investment Reyes recommended selling in retirement? Speculative ventures.
“While it may be tempting to chase the next big thing, remember that in retirement, stability is key,” he said. “Selling speculative investments means you are not betting on your future.”
Private Equity
According to Sam Ellis, wealth management consultant at Greenleaf Trustretirees should consider selling private equity.
“Certain investments, such as private equity interests, may offer attractive returns but lack the necessary liquidity. During retirement, having easy access to your funds is essential for covering living expenses and unexpected costs,” he suggested.
He added: “Time horizon is a big consideration when considering private equity investments. Due to the lack of liquidity and increased risk profile, limiting exposure to private equity investments in retirement can provide greater flexibility and liquidity in an individual’s retirement portfolio.”
Life insurance
Ellis also suggested that retirees reconsider their life insurance policies to see if it makes sense to keep them.
“Life insurance is not technically an investment, but it deserves a second look when evaluating someone’s holdings during their retirement years,” he said.
“Individuals utilize life insurance throughout their working years to provide income protection for their families in the unfortunate event of premature death. In some cases, it may make sense to maintain life insurance policies during retirement. However, the end goal of life insurance must be evaluated to see if it still makes sense to keep it,” Ellis added.
Norber also shared his opinion on the matter: “The most important benefit of a traditional individual retirement account (IRA) lies in the tax-deferral treatment of assets. Simply put, the funds in a retirement vehicle grow over time without being taxed unless they are withdrawn before age 59½. However, if the money is transferred into a life insurance policy, the individual is penalized 10% and taxed at their normal income levels.”
Highly leveraged investments
Finally, Reyes said retirees should consider selling highly leveraged investments.
“It’s like playing with fire – sure, you can feel a huge blast of heat, but you can also get burned. Selling highly leveraged investments protects you from getting burned and helps keep your retirement income stable,” he said.
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This article originally appeared on GOBankingRates. with: I’m a Financial Advisor: Here Are 7 Investments I’ll Sell Before I Retire