Mad Money

Invest for Retirement, Don’t Save

The perceived downside risk of stocks often sends those planning for retirement running to the safety that bonds provide.

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Retire Right

The problem with that strategy, though, is that building an adequate nest egg is a race against time. Bonds just don’t generate enough money to cover the cost of living once your work days are done. That 4% return barely outpaces inflation.

The same goes for vehicles like stable-value funds. As Cramer said, they offer slightly better returns than money-market funds and slightly worse returns than a high-quality bond fund.

Cramer wasn’t saying that bonds have no place in a portfolio. But stocks come first. His suggestion: Buy a cheap S&P 500 index fund. It’s usually a good proxy for the market’s high-quality stocks.

Here’s Cramer’s retirement-planning breakdown for bond ownership:

  • He sees no reason to own bonds during your 20s
  • In your 30s, 10%-20% of a retirement portfolio can be in bonds
  • The number climbs to 20%-30% in your 40s
  • 30%-40% in your 50s
  • from age 60 until retirement, bonds should be 40%-50% of your portfolio

Even in retirement, though, you should still own stocks, Cramer said. We’re living a lot longer these days, and not owning stocks is a bet against your own longevity.






Questions for Cramer?

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