The investors are senior citizens who have recently retired. Their goals: hanging onto their money and earning enough return to make it last throughout a long and healthy retirement. Their investment vehicles are all mutual funds. This is the asset allocation plan they might draft with their adviser.
“One of the key elements: What other income do they have coming in?” says Jill Gianola, CFP, author of “The Young Couples Guide to Growing Rich Together.” If you’ve got Social Security and that’s it, you may want to “play it more conservatively,” she says.
Have an investment check-up several years before you retire. Weigh factors like whether you plan to work part-time in retirement; the worth of other resources, like a pension; and whether you and your spouse will retire simultaneously. And look at the cost of things like long-term care insurance.
And don’t forget your retirement investments if you have significant changes in your life during retirement. “I’m seeing a lot of divorces in the 60- and 70-year-old range,” says Kathleen Miller, CFP, president of Miller Advisors Inc. in Kirkland, Wash. “That will change a retirement plan.”
After retirement (and barring life events), plan a check-up annually, and you’ll probably be changing your asset allocation plans every three to five years, says Mark Berg, CFP, national board member of the National Association of Personal Financial Planners and the president of Wheaton, Ill.-based Timothy Financial Counsel Inc. “The 60s isn’t the end from our perspective,” he says. “It’s just the beginning of retirement.”
Peggy Cabaniss, CFP, agrees. “You want some potential for capital appreciation, but lower volatility,” she says.
Two situations where you can’t have high stock allocations: people who don’t have the money to be in the market at all; and people who have the money but are scared of the stock market, says Cabaniss. For people in those situations, you might want to reduce the stock portion back to 20 percent to 25 percent, she says.
In the bond category, you want to include “three to five years’ living expenses,” says Cabaniss. “So that when you’re in withdrawal mode and we’re in a bear market, you don’t have to make withdrawals from the stock portion when it’s down,” she says.
Source: Portfolio drafted by Peggy Cabaniss, CFP, president of HC Financial Advisors in Lafayette, Calif., and past national board chair of the National Association of Personal Financial Planners.