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.
