I retired two years ago. Up until now, I’ve continued my Fool Stock Advisor enrollment and buying recommendations. Everything in my IRAs is in stocks. Thinking that perhaps I should begin moving some money to safer assets, I let my subscription to SA lapse. Now I’m questioning if I’m following old adages about where I should put my savings. I’m curious as to what other retired Fools do.
I’m in the same boat. I rebalanced my IRA assets as 70% SP500 index fund and 30% money market fund. Didn’t change my non-IRA individual stock holdings, as they have substantial gains which would trigger gain taxes. Will sell those off over the coming years to fund living expenses, keeping the sales/gains within the 0% capital gains tax bracket.
Welcome to retirement!
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Most will be retired these days for 30 years or more. You need a major equity position to keep up with inflation. As much as you are comfortable with.
As to worry about the downside the best solution is a laddered maturity bond portfolio containing five years of living expenses. Stock market crashes usually recover in three years or so (when you own quality stocks with earnings).
The method is each year a bond matures. You sell stocks to replace it and continue the ladder. In a crash you defer replacement and live off the maturing bond and interest until the market recovers. Do replacement when the market recovers.
If you accept the 4% guideline for retirement, that implies 20% in bonds. And can be far less if you are well over the funds needed for 4%. Some use dividend paying stocks for income stability. Personally I own very few bonds but do own some blue chip stocks for stability.
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Way too many folks in our 55 Plus community act like they are 30 years young regarding their financial management. Here most people avoid a short dieing process - i.e. gunshots, auto accidents or stokes. Many have 4 to 24 months of continous decline. Others have multiple years of deterioration. Particularly the later group generally do not recognize their mental deterioration.
In my view anybody wealthly enough to need a will, needs also to have in place a plan B for financial management. We have all our portfolio in mutual funds or ETFs - mostly index type vehicles. The actual owner of everything except our house contents and cars is a Trust. If one of the Trustees thinks I am losing it and I don’t agree, the issue goes to a third party. If I am deemed not capable, I have can request a re-examination in 6 months.
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Even if you’re not wealthy, a trust is a good idea. Even if it’s just your home. Avoids probate.
I once read on the Fool a looooong time ago that you shouldn’t really change your investment style if it’s working, simply because you’re getting older. The only change you want to make is the cash-cushion you have. When you’re working, you don’t need as big a cushion as when you’re retired, because you have an income stream. SS helps retired people, but usually it isn’t as much as the paycheck was.
I still own the stocks that I own, and occasionally trade on one or two. Plus the retirement accounts that are in -mostly- Fido mutual funds. I have a good two years’ cash cushion…more if we don’t travel anywhere.
That is, of course, assuming you already live by the general advice of not being focused in one company, or even one sector. Most of the companies I own would likely be “Rule Makers”, if you remember those!
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Does reading something make it true?
And I can’t see any reason for me (born in 1941) to have the same investment approach I used in the 1990s. Growth is really not critical or even important any more. But suffering a Q1 2000 or Q1 2009 melt down would mean considerly less money for the benificaries of my estate.
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Or course while you are working you have more time to change strategies if something changes. Less so when you are retired. Some adjustment may be a good idea. But much depends on the size of your reserves. If reserves are adequate and you have a successful strategy, why change. But if your plan is to just barely get by, you need to be more careful.
Everyone’s situation is different and you have to plan for your situation.
Now, if you are expecting to pass on most or substantial part of the estate to your beneficiaries, then what is the point of playing defense? Of course, you don’t want to run out of money in the years you absolutely need them.
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Not necessarily, you are quite correct. This was from the days when the Fool wasn’t selling anything. No news letters or advisory packages. They were assuming you were following their other advice (“Wise” vs “Fool”), and not playing games with risky stuff. In that case, whatever investment style is working, keep at it. Just expand your cash cushion so you don’t have to liquidate stuff if a downturn happens.
I’m most comfortable with equities, mostly Rule Maker-like stocks. I’m not swinging for the fences, and TMF in those days didn’t advocate swinging for fences.
As I recall, most of the discussion was how to maximize the return on that cushion vs safety (e.g. a laddered bond portfolio is riskier than a savings account, but a savings account doesn’t usually keep up with inflation).
Also, one bit of advice 1poormom got from a financial adviser: don’t invest for your kids’ inheritance. Manage the money for yourself, and if there’s anything left when you die, that’s just a bonus. I always told 1poormom to use her money to suit herself. Don’t try to leave anything for me.
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I manage my mother’s retirement accounts. Things are about 2/3 equities and 1/3 CDs. The CDs amount to about 3-4 years worth of living expenses. Two big caveats for her: one, retired teachers pension and two, retired military medical benefits.
You will see many thought processes. Some suggest 3-5 years worth living expenses in CDs/money market. Some say certain percentage in bonds/bond funds. But unless bonds are held to maturity, they can be as volatile as stocks. Do you what feel comfortable with and understand. What allows you to sleep at night.
Great replies so far. It gives me a lot to think about. One thing for certain I will continue is to never have a knee jerk reaction to market swings. I rode out both the 2000 and 2009 corrections and even purchased a few Fool recommendations. Having a safety net of CDs and Money Market makes a lot of sense to me and is a process I can work on in the next dew months.
I also had to do that. I’ll skip the entire story, and just mention that 1poormom was in the throws of dementia. Hospital staff noticed it right away. I now know the signs to look for. At the time, I just thought it was age-related forgetfulness. Moved her into independent living (later, assisted, and then memory care over the next few years). I took over her money (in a trust…I was the trustee).
Since I’m not a complete bastard, I managed it for her. I made sure she was in a really nice place, and I didn’t skimp on any of her needs. If she needed it, I procured it for her. As it happens, there was money left over when she had her stroke and died. If there hadn’t been, that would have been fine by me. It was her money, she worked hard for and saved, and I wanted her to get the maximum benefit possible under those circumstances.
Her stock portfolio was mostly my company stock (she believed in me, so she invested…I never knew how much until I took over). I diversified it pretty quickly, using my style of investing (moderately conservative). Plus she had a managed account (I won’t name them) that her friend talked her into. It was performing well enough, even if the management fee was a bit higher than I thought it should have been. I mostly directed the manager to give periodic payments to satisfy her monthly needs, leaving the brokerage unliquidated. I treated it as her cash cushion, along with her SS and LTC. We probably ate up a quarter of that managed account (memory care isn’t cheap, especially in a good place), while her brokerage doubled. SS and LTC definitely helped. (Side note: if you don’t have LTC, you should consider getting it).
One cool thing about the managed account, the manager liked 1poormom, and would run “what ifs” for me. He did it two or three times when I asked. He estimated that -worst case- she’d have enough funds to last to 100. She didn’t get there, of course.
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We have no kids – all our money will go to non-profits that we care about. Five of them, each with 20%.