If there's one thing I want for my retirement, it's not to be too heavily reliant on Social Security. This isn't because I don't expect to get any benefits. Rather, it's because I know those checks won't provide a ton of income, and I recognize the importance of having a way to supplement them.
To that end, I've been working hard to save for retirement. But part of that process involves choosing the right investments for my portfolio so my money is able to grow.
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For years, I've been using real estate investment trusts, or REITs, to help grow my portfolio. Here's why I think they're a great investment for retirement.
The perks of holding REITs in retirement
If you're not familiar with REITs, they're companies that make money by operating portfolios of real estate. REITs come in different varieties, each of which carries its own risk and upside.
Residential REITs, for example, operate apartment complexes. Healthcare REITs operate medical facilities. And industrial REITs operate warehouses and distribution centers.
There are plenty of benefits to using REITs to build retirement wealth. For one thing, it's a great way to diversify your portfolio. It's also a great way to invest in real estate without having to actually own property.
But the reason I'm a big fan of REITs as a retirement income source boils down to one rule. REITs are actually required to distribute at least 90% of their taxable income to shareholders, which often results in higher dividend yields than many stocks are able to produce.
That extra income is key in retirement for a couple of reasons. First, it can supplement your Social Security checks. Second, it can serve as a hedge against volatility in your portfolio.
Having your portfolio lose value can be a scary thing in retirement, since at that stage of life, you may be tapping your investments regularly for income. But if you own assets like REITs that produce income steadily, that could allow you to tap your portfolio without necessarily having to sell off other holdings at a loss.
Know the risks, but recognize the upside
As with regular stocks, the value of REITs can change based on a host of factors, including broad market conditions. For this reason, I wouldn't recommend putting all your money into REITs -- not now, and not in retirement.
But I do happen to think REITs offer a world of upside for retirees. So while I plan to scale back on certain stocks I own in retirement, I'm planning to hang on to my REITs for the long haul.
