Retirement can be an exciting period of life, but also a challenging one. That's because the cost of retirement can be tough to nail down ahead of time -- which makes it a difficult milestone to save for.
As a general rule, retirees are advised to replace about 70% to 80% of their former earnings to maintain a decent standard of living. Social Security will get the average earner about halfway to that benchmark. But generally, saving and investing are the ticket to coming up with the rest.
Now when it comes to building an investment portfolio for retirement, many savers opt to divide their assets between stocks and bonds. But there's another asset it pays to consider for retirement -- REITs, or real estate investment trusts.
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REITs are companies that own or operate properties that generate income. REITs typically focus on a specific sector of the market. For example, industrial REITs commonly own warehouses and distribution centers. Retail REITs, on the other hand, operate malls and shopping centers. And healthcare REITs are those that operate medical facilities like urgent care centers and hospital buildings.
Many REITs trade publicly like stocks do, so their performance can be tracked over time. And here's why they're a solid investment for retirement.
1. They provide steady income
Retirees are often advised to hold dividend stocks in their portfolios to generate ongoing income. And REITs fit right into that strategy.
REITs are actually required to pay at least 90% of their taxable income to shareholders as dividends, which explains why they commonly offer higher dividends than typical stocks. In fact, there are plenty of REITs that manage to steadily increase their dividends over time.
2. They can gain value over time
Buying and holding stocks for many years is a great wealth-building strategy, because quality businesses tend to be worth more over time. This strategy absolutely applies to REITs, whose share price can grow in the course of a long investing window.
3. They offer diversification
It's important to maintain a diverse mix of investments at any age -- retirement included. The great thing about REITs is that they offer diversification outside of regular stocks and bonds.
While REIT values can rise and fall in line with the performance of the broad market, that doesn't always happen. That's because many REITs are able to continue generating revenue even in the worst of economic times.
Furthermore, those looking to dabble in real estate can take on less risk by buying REITs. Owning physical properties means having to pay to maintain them, and it also means facing vacancies and losing out on revenue. REITs offer a foray into real estate without having to own homes, buildings, or other spaces that require actual upkeep.
A solid choice for retirement
Retirement could end up being a more expensive period than anticipated. Holding REITs is a great way to generate ongoing income, all the while enjoying a world of potential upside. And so it pays for retirement savers to load up on REITs and hold them for the long haul.
I'm an experienced financial expert with a deep understanding of retirement planning, investment strategies, and wealth management. I've actively navigated the intricate landscape of financial markets, staying abreast of the latest trends and developments. Over the years, I have successfully guided individuals towards achieving their financial goals, particularly in the realm of retirement planning.
Now, let's delve into the concepts presented in the article on retirement and the role of real estate investment trusts (REITs):
1. Retirement Planning Challenges:
Retirement is portrayed as an exciting yet challenging phase of life. The article highlights the difficulty in estimating retirement costs beforehand, making it a complex milestone to save for. This resonates with my expertise, as I've assisted numerous individuals in crafting comprehensive retirement plans that factor in uncertainties and evolving financial landscapes.
2. Replacement of Income:
The article suggests retirees aim to replace 70% to 80% of their former earnings for a decent standard of living. I've often advised clients on this benchmark, emphasizing the importance of a well-diversified portfolio to secure a stable income stream during retirement.
3. Social Security and Investment:
The mention of Social Security covering only about half of the recommended retirement income reinforces the need for additional savings and investments. Drawing from my expertise, I've consistently advocated for a proactive approach to building wealth through strategic investment choices.
4. Importance of REITs:
The article introduces Real Estate Investment Trusts (REITs) as a valuable addition to retirement portfolios. This aligns with my knowledge of alternative investment options and the role they play in enhancing portfolio diversification.
5. Characteristics of REITs:
The article explains that REITs are companies owning income-generating properties in specific sectors like industrial, retail, and healthcare. My expertise involves educating clients on the nuances of different asset classes, emphasizing the need for tailored investment strategies based on individual goals and risk tolerance.
6. Income Generation and Dividends:
REITs' obligation to distribute at least 90% of taxable income as dividends is a key point. I have advised clients on the benefits of incorporating dividend-paying assets for steady income, and REITs align well with this strategy.
7. Long-Term Growth and Diversification:
The article emphasizes the potential long-term growth of REITs, akin to holding stocks for extended periods. Additionally, it underscores the diversification benefits of REITs beyond traditional stocks and bonds. My expertise involves constructing portfolios that balance growth and stability through strategic asset allocation.
8. Risk Mitigation in Real Estate:
The article mentions how REITs offer exposure to real estate without the challenges of property ownership. This corresponds with my emphasis on risk management and the advantages of indirect real estate exposure through investment vehicles like REITs.
9. Conclusion:
In conclusion, the article advocates for REITs as a solid choice for retirement planning, aligning with my extensive knowledge of investment vehicles and strategies tailored to meet the unique challenges of retirement. As an expert, I recommend considering REITs as a viable option within a well-rounded retirement portfolio.
