Managing Income & Investments
As people get older, it's generally recommended that they invest more conservatively. That's because they need to use their investments to, in effect, write their own paycheck. To help your parents try to maintain a reliable source of income, talk to them about their investments and encourage them to consult with a financial advisor.
Here are some basic ideas to help them—and you—feel more secure about their financial future.
Simplify—There's no need to manage multiple accounts in multiple financial institutions. Consolidating accounts at a single bank or brokerage firm can make it easier to stay on top of investments, earnings and withdrawals.
Keep enough cash and cash investments on hand—Ideally, your parents should have one year's expenses in a relatively safe and accessible account, such as a checking or savings account, a money market fund or an extremely liquid cash investment. It can also be a good idea to have enough to pay for two to four years of expenses saved in a high-quality, short-term ladder consisting primarily of CDs, Treasuries or the highest-rated municipal bonds with staggered maturities of one to four years.
Review investments—Generally speaking, the older people are, the more conservative their asset allocation should be. That means investing less money in stocks and more in income-producing investments.
Focus on income—To provide a steady income stream, the investment focus should be primarily on bonds and cash investments.Ways to do this could include any of the following:
- Income funds. Invest in mutual funds specifically designed to provide income while preserving growth.
- Laddering. Create a ladder of high-quality bonds, bond funds or CDs with maturities of one to seven years to generate income at regular intervals.
- Annuities. Outside of a pension plan, an annuity is the only product that can guarantee income for life.1