Sometimes the biggest risk is never taking one.
According to a survey conducted by the Western & Southern Financial Group, respondents believe that their savings will run out at 79, despite an average expected lifespan of 85. With 35% of respondents expecting to live past 90 and only 16% planning for 30 or more years of retirement, it’s clear that Americans will need to save more for their golden years.
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We spoke with a retirement expert to determine types of risky investments that could still be a reliable income stream during one’s retirement years if you build them up carefully while you’re still young enough. On a long enough timeline, these only have to hit once to pay off.
Investing in Future Potential Results
“Investments with long timelines can be smart ventures for those who still have many years until retirement,” said Scott Maurer, a certified IRA services professional at Advanta IRA. “Risk is often assumed to be a part of long-term investments because of the unexpected events that can occur over time.”
He listed three investment strategies that involve longer timelines for returns, which can be helpful for those seeking income in retirement. These are risky investments, but their potential future results can lead to lucrative income in retirement, particularly if you have a long-enough timeline to wait out success or try again after failures.
1. Invest in a Startup
“Investing in a startup or early-phase company via a private equity position or a long-term loan,” is one possibility, said Maurer. “With some companies that are just starting out, investors can secure a potentially lucrative position in the business if it succeeds.”
In a scenario like this, the investor understands that the returns shouldn’t be anticipated until the distant future.
There’s also the risk that the company will fail for any number of reasons. When you’re investing in a brand-new company, there are many factors involved, but the hope is that the company succeeds and you can cash out one day.
2. Invest in Real Estate Projects
Maurer said that you may be able to be an early investor in a project that will take a significant amount of time to build, such as a large real estate development. The return on investment may be many years away, since it takes a long time to build a project. The options include housing developments, pre-construction properties or commercial buildings.
Stephen Vecchione, certified financial planner and managing partner at Statera Advisors, also believes that income-producing real estate can be a reliable retirement income stream.
“While owning rental property can be volatile and management-intensive early on, it has historically rewarded long-term investors who are patient and disciplined,” he said.
As a young investor, you could face many risks and issues, including vacancies, rising interest rates, repairs and market cycles. However, the tenants can help pay down your mortgage until you have a debt-free asset generating substantial income in retirement, so that you don’t have to stress about running out of money.
3. Invest in Land
If development or management isn’t your thing, you can buy raw land in an area that is expected to boom, or at least become more in-demand in the future.
“This type of investment often doesn’t have a known timeline, so patience and a vigilant eye on property values are part of a successful conclusion to this strategy,” said Maurer.
Warning About Risky Investments
While the goal is to generate returns from your risky investment to ensure you never run out of retirement income, the reality is that there are no guarantees. Maurer warned that when it comes to risky investments, it’s prudent for investors to understand how long their funds will be tied up and what it will take to generate returns.
The good news is that investors who can stay patient as their funds earn nothing (or little) in the short term may find it a much more lucrative strategy in the long.
Factoring Risky Investments in Retirement Planning
The goal is to handle market swings while you’re still working, so you have a steady income stream when you retire.
“The key is treating real estate as a long-term business rather than a short-term speculation. Investors who buy quality properties in strong markets,” said Vecchione, and “hold through market cycles, can often create a dependable source of retirement income that can also provide tax advantages and inflation protection.”
Maurer said that successful long-term investments tend to produce outsized returns relative to the initial investment. If you take these risks early enough, you can possibly have retirement income for as long as you need it.
Editor’s note: Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions. This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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