It’s pretty much on autopilot, I know very little about investing.
Hopefully you mean “401k account” and have a balance of more than $4,100.
If you’re using the “4% rule” for withdrawals and you have an allocation of 100% stock today, I’d start moving 5% per year to fixed income assets with the goal of having a 60% stock, 40% fixed income allocation at age 70 when you retire.
intercst
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Welcome, my friend.
I can’t give individual investing advice. That said, I’m happy to share general thoughts and questions to consider as you go on your journey.
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What will your monthly costs of living be once you retire?
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What, if any, “guaranteed” income will you get once you retire? Think things like a pension, Social Security, etc.
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What’s the current value of your investments?
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Do you own a home? And do you plan to stay in it or sell it once you retire?
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How long do you expect your retirement to last?
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Do you have a spouse or other dependent who will need your financial support, both while you’re alive and after you’ve passed?
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What are your wishes for any money that lasts beyond your life?
Long story short: if your “guaranteed” income sources will more than cover your expected costs in retirement, then it matters far less what you’re invested in than if you need your portfolio to cover some of your costs.
On the flip side, if you have a gap between what you’ll get automatically and what you’ll need to spend, then then you’ll have to figure out how to leverage your portfolio to help you cover that gap.
With 8 expected years of work remaining, now might be a reasonable time to start thinking about getting more conservative with part of your portfolio, or it might still make sense to be aggressive to give yourself a fighting chance of getting the portfolio big enough to sustainably cover that gap for the rest of your life.
Regards,
-Chuck
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Your best strategy is a diversified portfolio in equities, ie stocks. You can do that with mutual funds especially index funds. Or a well chosen selection of stocks.
Yes switching to some dividend stocks and/or bonds is a good idea as you get close to needing the money. A laddered maturity bond portfolio is your best choice. Better than bond funds. Ideally when you retire you should have five years of living expenses in bonds. But keep as much in equities as you can for better inflation protection.
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Another rule of thumb, if it is money you will definitely need within 5 years, it should not be invested in the stock market. Reasoning is that most market downturns/corrections/recessions last less than 5 years.
For example, say you had planned to retire this May. You were 100% in stocks. The tariff announcement hit in April and you were about 20% down almost overnight. Could be put in a position where retirement is now delayed or seriously altered. No more bucket list trips, etc. But if you had 5 years worth of monies invested in CDs, nothing has changed.
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Thank you, I’ll see about moving things around.
Thanks, all great questions; some that I didn’t think about. I’ll need the retirement accounts for support. I’m genetically predisposed to live into my 90’s so 20 years at least.
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Chuck,
Would you take a pension at 50 years old in the amount of $50,000 per year
or
would you defer it to 55 years old and receive $62,000 per year?
What factors would you consider in making this decision?
Seems like a nice “bridge” until accessing the traditional/Roth retirement accounts at 59.5 and then SS later on…
I do have a brokerage account and cash with about 4-5 years of living expenses that I could tap, along with a home mortgage that will end at age 55…
Maybe I should stop investing for my retirement now and build up the brokerage account in the next 3 years to defer the pension as long as possible…
On its own, with no other factors at play, that’s a Net Present Value (NPV) calculation. The key question marks you have to estimate are “how long will the pension be paid?” and “what discount rate fairly reflects the risk/potential reward?” As general rules, the longer the expected lifespan, the more the math favors waiting, but the higher the discount rate, the more the math favors starting early.
In addition to the NPV math, key factors to consider include:
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Is there enough money in easily accessible accounts to cover those 5 years? If not, then taking the money early probably makes sense, even if the NPV says otherwise.
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Does the pension have survivor benefits – and is there a potential survivor that might be dependent on it? If so, it might make sense to err on the side of the higher benefit amount, particularly if that survivor doesn’t have a strong investing framework and mindset.
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Are Roth IRA conversions a possibility? If so, on one hand, having more money early can help with the conversion taxes, which would argue for claiming early. On the other hand, having a lower income can give you more headroom to make conversions in lower tax brackets, which would argue for claiming later – as long as there’s enough money outside of the retirement accounts to cover those conversion taxes.
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Are there plans for major early-in-retirement spending like “bucket list whole family vacations” or home renovations? If so, taking the money early can relieve some of the pressure on the portfolio, keeping more of the already-saved money available for compounding.
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The risks of elder scams and/or other risks from diminished faculties would provide arguments towards waiting to take the higher guaranteed income stream. This is because if a scammer takes your entire nest egg, it’s likely gone forever, but if a scammer misdirects a payment stream, future payments can be redirected back.
There’s a financial YouTuber I listen to, named Ari Taublib, who is a big advocate of after-tax investing accounts, particularly for people looking to retire early. While there are often ways to avoid the penalty from tapping retirement accounts early, those approaches typically have tradeoffs and/or limitations.
One of his big points is that in an after-tax account, a decent amount of money can often be tapped effectively tax free or low tax (on a federal level anyway) by retirees without other sources of income, thanks to the rules on qualified dividends and capital gains. Another of his big points is the fact that those after-tax accounts can be tapped prior to retirement age without restrictions or penalties (though taxes are still a thing).
Regards,
-Chuck
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Him and James Conole @ Root Financial…LOL
I have been Binge watching those two, along with Azul, Rob Berger, Erin talks money, etc…