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Losey: Asset Allocation At Retirement

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Question: I’m getting closer to retiring and everything I read says I should get more defensive in my portfolio. Does this make sense for me?

Answer: It depends.

How is your portfolio allocated now? Do you own mostly stocks or do you have a lot of money in bonds and CDs? What’s your current asset mix or asset allocation? Do you know what your portfolios expected return is? Can you quantify how much risk you’re taking with your current portfolio? Are you comfortable with the risk? Will your current portfolio generate enough income to allow you to live the lifestyle you desire? As you can see, there’s no quick answer to your question.

For some reason, people automatically assume they need to get more conservative in their portfolio when they retire. It’s probably because they read it in a financial magazine somewhere that says all retirees should do it. But, times have changed. People are living longer, healthier lives than their parents did and your money needs to last a lot longer.

I recently met with a 60-year old recently retired gentleman who has 100% of his money in stocks. It seemed a little extreme for me at first glance. However, after talking with him about his needs and situation, an aggressive portfolio actually made sense for him. In my opinion, just because you retire does not mean you need to change your portfolio. Certainly, retirement is a triggering event and it’s a good time to review your financial strategy, but it isn’t mandatory you need to reduce or eliminate your exposure to stocks.

Bill’s Bottom-line: Your retirement could last for 2-4 decades and most people severely underestimate their retirement income needs. At a minimum, you should maintain at least 40% of your money in stocks. You should also ask your advisor if your investment strategy is designed to double your income over the next 20 years. Due to inflation, you’ll need it.

Your Money on CNBC.com

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Bill Losey, CFP®, America's Retirement Strategist®, coaches women and couples nationwide with their retirement planning and investment portfolios. Bill is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional and he also publishes Retirement Intelligence®, a free weekly award-winning newsletter.
You can learn more at www.MyRetirementSuccess.com.