How to plan investing for the last 7 years of working life

Investing Strategies Retirement Investing
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The older I get the harder asset allocation becomes. I have about 7 working years left in me. How to invest comes into my head more and more.

  1. Invest to a final desired balance. This will give you a required CAGR, which can guide you to investments that will likely give you that. For me, that number works out to about 8.5%, and I could achieve that with an ordinary 60/40 balanced fund.
  2. Invest to my risk tolerance, knowing that at least 1 or 2 of those 7 years is going to be worse off than option 1, but the final balance should be higher. In that case, I might be tempted to go 100% VOO.

I have non-retirement liquid assets that will allow me to downsize my career/income over the next 7 years if necessary. So, fortunately, becoming forced into an early retirement is something I am likely going to be financially ok with. So I don’t have that worry.

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I am in a similar boat. 5 yrs for me and my number (the one the Mrs. gave me - which is higher than the one I calculated we needed), only requires about 6% (was 5% until this recent mess), and I thought long and hard about just selling everything and buying a 5 yr fixed annuity at 5.5%.

Because I was lucky and got mostly out before the worst of this, I am going to go aggressive again.

If I could wind the clock back 3 months and do it all again, with perfect hindsight, I think I would have picked the 5 yr fixed annuity even though I now get a nice opportunity buy in and ride the market back up.

Of course, nothing keeps the market up so I would still be stuck with risk I did not need. Having more than what the Mrs. arbitrarily demands isn’t worth the stress.

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With 7 working years left, I probably wouldn’t choose either of these options. I would choose to invest to get to my desired allocation in retirement. If, for instance, my desired allocation in retirement was 60/40 stock/fixed income split and I was currently at 100/0, I’d start putting any contributions/new money into the fixed income bucket, along with moving up to 5% of the stock bucket over to the fixed income bucket each year.

If I was already at my desired allocation for retirement, I would just stick to that allocation - rebalancing as needed.

AJ

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Yep. If you’re actually planning on a 4% inflation-adjusted withdrawal, and want to survive a retirement start date in the “worst of times”, I’d recommend a 60/40 mix on your retirement start date. If you don’t happen to retire on the eve of the next Great Depression, I’d keep the fixed income portion at 5 to 10 years’ worth of annual living expenses, and keep the balance in equities.

For example, if your portfolio doubles and your withdrawal rate drops to 2%, then 10 years worth of living expenses is 20% and your allocation is 80/20. Don’t forget that 4% is the withdrawal rate that survives the worst of times. There is a very high probability that you’ll end 30 years of withdrawals with a much larger portfolio balance than you started with.

intercst

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Hi @bjurasz,

How about some food for thought?

What we did leading into retirement was pretty much no changes.

For planning, I did use 8% growth (lowered to 6% and continue with), 4% inflation (lowered to 3.8% which I continue with).

When looking at our portfolio, I was high in dividend payers like Kimberly Clark (KMB), Coca Cola (KO), Pepsico (PEP), Proctor & Gamble (PG), Heinz (HNZ- bought out), Altri (MO), Paychex (PAYX), etc. I had some growth stock like Intel (INTC). Most of the rest was in bond funds and cash. We were going to build a new house at retirement so the cash and part of the bonds was dedicated to the building costs.

I looked at the conservative investments to make the retirement possible.

I looked at the growth part for “added juice.”

The building funds were “removed from retirement planning.” Using the Quicken Planner made this simple.

I still use that basic model 20 years later. The dividend payers cover all our expenses with a large safety factor (currently 149% over expenses). The growth companies are the gravy. If all our growth stock was wiped-out, I would not be happy about it but it would not change how we live. We can lose more than half of our dividends and still be Ok. The likelihood of that happening is remote.

One of my prime motives is for smooth continuation if I depart this world. My DW is not an investor and has no interest in it. This can be untouched and she will have the cash she needs. She knows how to do the transfers.

In late 2020, when we decided to build this house, I sold growth stock heavily, no dividend payers. When we were done paying for materials and all the various contractors, I pushed more than half of the remaining cash into dividend payers which changed our safety factor from around 50% to over 100% and growing to the current 149%.

Does that help you?

Gene
All holdings and some statistics on my Fool profile page
Profile - gdett2 - Motley Fool Community (Click Expand)

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Some good advice here that I needed to hear from others. Thanks. I am really close to going to a 60/40, or a 70/30 portfolio modeled on the Bogle 3-fund approach, and after going over these responses I think it is a rational thing to do. Thanks everyone.

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