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Investment Options for Seniors

Investment Options for Seniors

Many investment guides will point out that as you get older, your approach to investing should shift. A person in his or her twenties just starting to work should have a greater appetite for risk than someone nearing or already in retirement. Moreover, as you approach retirement age, new rules may apply to your existing investment options.

Here's an introduction to some of the things you need to know about investing as a senior citizen.

First, make sure you have money that you can access easily in case of emergencies. Financial planners often recommend two to six months worth of emergency savings; seniors may be more comfortable with a year in reserve. Your emergency savings should be in a very stable investment you can access easily, be that a savings account, a money-market account, or a short-term certificate of deposit.

Second, realize that while your emergency funds should be invested for the short term, you should maintain your long-term financial planning. According to the Centers for Disease Control, the average 65-year-old man in 2007 could expect to live another 17 years, the average 65-year-old woman nearly 20 years. That means you may still want to keep some of your investments in lower-risk stocks. Treasury bonds, a popular investment among seniors, have the advantage of being safe and predictable, but may not pay out enough to keep up with inflation over the long term.

Third, know that as you age, you will encounter new rules about how your investments are treated for tax purposes. If you have a traditional Individual Retirement Account (IRA), you must start withdrawing money from that account once you turn 70 years and six months old. The IRS publication on traditional IRAs has examples on how to calculate your minimum distribution. The rules are different for Roth IRAs. Keep in mind, also, that you will be paying taxes on withdrawals from traditional IRAs, but not Roth IRAs. A tax attorney, tax preparer, financial planner, or specialist at the company managing your IRA can help walk you through the differences between the two.

Finally, review your current investment strategies and see if you're comfortable with your balance of assets. If you've previously invested in a plan that's set to shift investments as you get older, check to make sure the current investment levels are where you would like them to be. Investment specialists such as Fidelity, Vanguard, and Charles Schwab all provide advice and calculators for thinking about your personal acceptable level of risk.

A financial adviser may be able to give you confidence and help explain your different options. If you decide that you want the help of a financial adviser, sit down for an interview with him or her first, both to gauge how much experience he or she has with retirement issues and to assess your own comfort level with the person.

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