Retirement marks an important chapter in life, offering the opportunity to relish the rewards of years of dedication and effort. However, it’s also a time when financial security becomes paramount, and your decisions can have long-lasting impacts.
For Baby Boomers, the urge to downsize or liquidate assets is natural, but selling certain things may not be wise. Here are some items Boomers should think twice about selling during retirement.
Real Estate Property
Real estate is one of the most tangible and historically appreciated assets. For Boomers entering retirement, holding onto real estate can offer a dual advantage: continued appreciation in property value and a consistent stream of passive income through rent.
A report from Redfin reveals that the total value of U.S. homes increased by $3.1 trillion over the past year, reaching an unprecedented $49.6 trillion. The decision to sell real estate may provide a significant cash infusion in the short term but could undermine long-term financial security.
Dividend-Paying Stocks
Dividend-paying stocks are an essential component of a well-rounded retirement portfolio. These assets provide a consistent income stream that can be reinvested or utilised to cover living expenses, making them particularly valuable in retirement.
The S&P 500’s historical dividend yields have generally fluctuated between 3% and 5%. Selling such stocks can deprive retirees of this reliable income stream, forcing them to rely more heavily on withdrawals from other accounts, which may not be sustainable over the long term.
Family Heirlooms
Family heirlooms hold a unique place in retirement planning due to their sentimental value, which often far exceeds any monetary worth. Selling these items might provide a temporary financial boost, but the emotional cost can be significant, leading to regret.
Furthermore, heirlooms are often irreplaceable and have deep connections to family history and legacy. Keeping heirlooms within the family preserves the lineage and gives future generations a chance to connect with their heritage.
Life Insurance Policies
As Boomers retire, the temptation to cash out a life insurance policy for immediate financial gain can be strong, especially if premiums seem burdensome. However, this decision could leave loved ones financially vulnerable in the event of the policyholder’s death.
Research indicates that 44% of households would experience financial struggle within six months if the primary wage earner dies. Life insurance ensures that the surviving family members can maintain their standard of living and have a financial cushion during a challenging time.
Pension Income Streams
Pension plans provide a life-time of guaranteed income, providing a stable financial foundation during retirement. Withdrawing a lump sum payout instead of monthly payments can be risky, particularly if the money is not invested wisely or unexpected expenses arise.
Data suggests the average life expectancy for a 65-year-old in the U.S. is around 81 years. A pension that provides consistent payments helps protect against the risk of outliving one’s savings, a significant concern for many Baby Boomers.
Annuities
Annuities are financial products designed to offer a stable income stream, often for life. Selling an annuity or cashing it out early can result in significant penalties and fees, reducing the overall value and potentially jeopardizing long-term financial security.
Annuities are particularly beneficial for those without a pension or other guaranteed income sources, as they can effectively mimic a pension’s stability. Annuities could significantly reduce the risk of outliving your retirement savings, especially if you retire without a pension.
Long-Term Care Insurance
Long-term care insurance is an essential safety net for retirees who need assisted living, nursing home care, or in-home care services. These expenses could rapidly deplete retirement savings, leaving retirees and their families financially strained.
Long-term care insurance covers a variety of services that Medicare typically does not, including custodial care and personal assistance. Selling or canceling this insurance could expose Boomers to significant out-of-pocket costs if long-term care becomes necessary.
Precious Metals
Precious metals like platinum, gold or silver have traditionally been viewed as dependable stores of value and effective hedges against inflation. For Boomers, holding onto precious metals can provide financial security during market downturns or periods of high inflation.
Reports suggest that gold has yielded approximately 7.9% returns annually since 1971. Retaining precious metals can help Boomers preserve their purchasing power and minimizing the effects of inflation on their retirement savings.
Collectibles
Collectibles, such as rare coins, stamps, art, and antiques, appreciate significantly over time, particularly if they are rare or in high demand. For Boomers, holding onto collectibles can offer a unique form of investment that may yield substantial returns in the future.
The global collectibles market is forecasted to reach approximately USD 762.08 billion by 2032, with a compound annual growth rate of 5.4% from 2024 to 2032. Boomers can leverage this opportunity to grow their wealth while holding onto items that are meaningful to them.
Rental Properties
Rental properties can serve as a dependable source of passive income, making them a valuable asset for retirees. As apartment rent skyrockets despite cooling inflation, rental properties can generate steady income while potentially appreciating.
Selling rental properties might provide a lump sum of cash, but it also eliminates a crucial income stream that could be vital in retirement. Furthermore, rental income often increases over time, offering Boomers a steady income stream and potential capital appreciation.
Business Interests
For Boomers who own small businesses or have stakes in one, retaining these business interests can be a significant source of income. Businesses often appreciate over time, and selling them prematurely might mean missing out on future growth and higher returns.
Small business owners earn an average salary ranging from $32,000 to $147,000 on the high end. Additionally, many Boomers derive personal satisfaction and a sense of purpose from their businesses, making it more than just a financial asset.
High-Yield Bonds
High-yield or junk bonds typically offer greater returns than government or investment-grade bonds. While these bonds carry higher risk, they can increase portfolio yields, especially in a low-interest-rate environment.
On average, yields for junk bonds have typically exceeded those for comparable U.S. Treasuries by 4% to 6%. This substantial difference in yield highlights the importance of high-yield bonds in generating income for retiring Boomers.