Creating a Diversified Retirement Portfolio for Seniors

According to AARP, one in five U.S. adults aged 50 and older have no retirement savings. Over half also worry their finances won't last in retirement.

Being in retirement should make older adults feel free, not shackled by economic and monetary woes. The good news is that seniors can maintain financial stability in their golden years with a diversified income portfolio.

The staff at Addington Place of Lee's Summit in Lee's Summit, MO, put together this guide exploring retirement income planning strategies. Read on to discover ways to help you achieve a more diversified portfolio and enhance your passive income streams.

Review Your Current Retirement Income Portfolio

The first step to diversifying a retirement portfolio for seniors is to determine its existing assets and performance.

According to the Federal Reserve, Social Security is the primary source of retirement income in the U.S., with 92% of retirees aged 65 and older receiving it. Nearly two in three (64%) also get a pension, while over half (52%) make rental income or earnings from interest and dividends.

Unless you review your current portfolio, you may miss out on other opportunities, especially if you only have one or two income sources. Knowing their performance (i.e., how much you earn from them) is also crucial to calculating their contribution to your overall earnings.

By learning all these things, you can determine if your current portfolio is enough to meet your financial needs in retirement. It should be able to meet your fundamental living needs, including food, healthcare, and housing costs, such as a mortgage (if you still have one) or your stay in a senior living community. If it's not, then at least you would know it's time to develop a more robust retirement investment strategy involving other asset classes.

Determine Your Risk Tolerance

Risk tolerance refers to the degree of risk you, as an investor, are willing to take based on an investment's volatility. It's crucial in diversifying your retirement income portfolio, as your tolerance will dictate how much income you can earn from investments. Remember: Your earnings can affect the manageability of your retirement expenses, including the affordability of senior living accommodations.

There are three primary "levels" of risk tolerance:

High-risk or "aggressive"
Moderate risk
Low or conservative risk

High-Risk Tolerance

Investors with a high-risk tolerance often invest in assets like stocks, exchange-traded funds (ETFs), and equity funds. They're willing to risk losses to earn potentially higher yields. They tend to be market-savvy, with a more in-depth understanding of asset volatility and strategies for earning higher-than-average returns.

Moderate Risk Tolerance

Investors with a moderate risk tolerance want to earn more without losing too much money. They usually weigh risks and opportunities for a more "balanced" strategy. For this reason, they tend to combine high-risk assets (e.g., stocks and ETFs) with low-risk investments, such as bonds and bond funds.

Conservative Risk Tolerance

Investors with a conservative tolerance want to earn investment income with as little risk as possible. They typically opt for highly liquid assets with consistent performance in generating returns, even though the returns are lower. Examples of assets they usually invest in are bonds, bond funds, bank certificates of deposit (CDs), and rental income properties.

According to Investopedia, people who are about to retire or have already retired often have a conservative risk tolerance. But if you wish to diversify your retirement income portfolio without taking on too much risk, you can spread the risk by gradually adding high-return, high-risk options. You should also expand things by adding fixed-income options (e.g., fixed-income funds).

The key is never to put your eggs in one basket. For instance, you shouldn't put all your money in bonds, even as a low-risk investor. Instead, spread your wealth among various low-risk assets, such as CDs, rental properties, high-yield savings accounts, and money market funds.

Keep Expanding Your Portfolio

Consider investing funds in new assets as your income portfolio earns more and generates higher profits. If you have a conservative portfolio, now may also be an excellent time to diversify it with a higher-risk asset.

Let's say your existing income-generating investments are doing well. If so, you may be ready and willing to take on more risk for a higher potential return.

Regardless of which new income-generating asset you decide to invest in, please always take the time to research them.

For example, many investments have disclosure statements. They're documents that explain how they work or generate returns. Please read these to help you understand what you're getting into and spending your money on.

You should also review the disclosure statements of your existing investments at least once yearly. Checking your portfolio during this time is also wise, as it can help you gauge whether you need to rebalance.

Rebalancing periodically lets you adjust your asset allocation. It can help you stay within your ideal risk threshold.

Consider Working With an Investment Professional

Investment professionals include advisers, financial planners, and brokers. They can help you make more educated investment decisions and assist with planning. For example, they can develop the most appropriate strategies to diversify your portfolio based on how well you tolerate risk.

Before hiring an investment professional, please ensure they are a licensed and registered entity. They must hold a license and registration with the Securities and Exchange Commission (SEC) or those issued by your state (e.g., Missouri Securities Division).

Hiring an unlicensed "professional" can be riskier than the highest-risk investments. So, please make it a point to research your investment professional thoroughly.

If you're in Lee's Summit, MO, you can ask about them by calling 800-721-7996. It's the Secretary of State's toll-free Investor Protection Hotline.

Keep Your Retirement Income Intact With These Tips

Remember: Diversifying your income portfolio is all about not putting all your eggs in one basket. By spreading your wealth in different assets and asset classes, you can spread your risks and reduce the odds of losses. It can help you generate more profits or, at the very least, stabilize your income in retirement.

Are you looking to transition to a senior living community to enjoy a maintenance-free lifestyle and fully enjoy your retirement? If so, we encourage you to consider Addington Place of Lee's Summit.