Should I invest in mutual funds in retirement?

By: Stacey Nickens

Mutual funds are very common investment vehicles inside of pensions, 401(k)s, and other savings accounts. People often choose mutual funds because they allow individuals to invest in hundreds of companies at once, reducing their investment risks through diversification. However, as you move into or towards retirement, you want to consider a few factors that may impact your investment decisions.

Mutual funds have unpredictable capital gains tax bills. In retirement, many people want to be able to predict and save for their annual tax bill. However, mutual funds generate unpredictable capital gains. Depending on how often the manager decides to rebalance the mutual fund, your capital gains can vary from year to year. Additionally, you often won’t know how much capital gains the fund has generated until December. This could leave retirees very little time to prepare to pay their capital gains taxes.

Mutual funds do not pay consistent dividends. Some mutual funds pay quarterly or monthly dividends. However, many other mutual funds only pay dividends on an annual basis. When budgeting in retirement, it could be helpful to align your dividend payments with your retirement account distributions. Aligning your dividends with your distributions allows you to receive income when you need it. For this reason, you may want to look at the frequency of dividends from your investments, whether they be equities or mutual funds.

With these two considerations, you may want to review your allocations in your retirement account. Of course, mutual funds may be right for you, depending on your needs. To be sure, you can set up a consultation with me, and we can decide the best investments for you and your portfolio.

Disclosures: Past performance is not a guarantee or a reliable indicator of future performance. All securities carry a unique set of risks subject to a variety of factors. There is no guarantee that these investment strategies will work under all market conditions or that they are are suitable for all investors. This material has been distributed solely for informational purposes and should not be considered as individual investment advice or recommendation. Individuals should consult their investment professional prior to making an investment decision.