I'm a firm believer in maintaining a diverse mix of investments — both during my working years as well as in retirement. But there are certain stocks or other assets I own now that I might choose to dump as retirement nears.
Yet there's one specific investment I own today that I intend to hang on to once retirement rolls around.
And you might want to consider following my lead.It's all about ongoing income
Retirement can be a scary period of life because for many people, it means moving over to a fixed income. Now, I hope to work in some capacity as a retiree, so ideally, I'll continue to generate income and alleviate some financial stress that way.
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But I'm not just counting on part-time work to generate income. I also intend to hold investments that generate income for me. And that's why I plan to hang on to the REITs I have in my portfolio today.
REITs, or real estate investment trusts, are companies that make money from the portfolios of properties they own and operate. An industrial REIT, for example, might generate revenue by leasing out warehousing space.
What I like about REITs as a retirement investment is that they're required to pay out at least 90% of their taxable income as dividends. Because of this, they commonly pay higher dividends than your typical stock. And that's an important thing to have in retirement.
While I intend to work as a retiree, I don't want to work the same 40 hours or more that I do now. So I like the idea of owning an asset that will pay me a generous dividend.
Furthermore, I like the fact that REITs allow me to invest in real estate without actually owning property. I don't have the stomach for that now, and I certainly don't think I'll be looking to take on the risk or hassle of owning an income property once retirement rolls around.
A great investment to hold later in life rather than sell
I own a number of stocks now that I might sell during retirement — ideally, at a profit. But REITs are an asset I plan to hang on to so I can continue to benefit from the dividends they pay.
If you're worried about having a limited income stream in retirement, it pays to focus on assets that pay you consistently. And you might find that REITs fit that bill.
This isn't to say that REITs should be the only asset you invest in when you're retired. Many retirees, for example, like to turn to municipal bonds because they tend to be stable investments that offer the benefit of predictable interest payments. Plus, as a bonus, municipal bond interest is always tax-exempt at the federal level. And if you buy bonds issued by your state of residence, you can avoid state and local taxes on your interest income, too.
But holding REITs in your portfolio for many years leading up to retirement, as well as during retirement, could work to your benefit. So if you don't own any at present, you might want to start loading up.
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