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There are so many retirement investing strategies out there. It can quickly become overwhelming. So how do you pick the perfect retirement investing strategy for you?
Here are a couple of common strategies that you may have heard
Take your age and subtract that number from 110. The result is the percentage you should be invested in stocks or stock funds. For example, if you’re 60, then take 110 minus 60. And according to this popular strategy, 50% of your portfolio should be invested in stocks.
Another style that a lot of advisors recommend is based on risk tolerance; how much risk can you handle? To help illustrate this point, here’s an anecdote I recently heard from Ron Bullis:
A man is sitting with his doctor who has just told the man that, unfortunately, he has cancer. Then the doctor holds up an iPad with a questionnaire on it and says, “hey, can you fill this out so that we could find out how much chemotherapy you’d become comfortable with?” And the man looks at the doctor, confused, and says, “well, obviously, I want the least amount of chemo that I need to get rid of the problem that I have.”
And that’s kind of how we look at risk, too. Why would you want to take more risk than you need to, even if you’re comfortable with it. It would be better to have a successful retirement plan and sustainable retirement plan with the least amount of risk possible. And, actually, a lot of clients come to us who are invested more aggressively than they need to be, because of how they filled out this risk-tolerance questionnaire with a previous advisor.
So how should I be invested in retirement?
This is not solely based on an age rule of thumb or your risk tolerance. The way we’ve seen retirees do it right is to create an investment plan based off of their income plan. This is how we plan for our clients at Streamline, too. So, the income plan comes first, and once you know how much you need and when you need it, then you see how you should be invested and how risky you should be. For many clients, after we’ve designed this income plan, we can clearly see that they don’t need a high level of risk in their portfolio for them to accomplish their goals in retirement.
A great retirement withdrawal strategy that we’ve seen work is the three-bucket strategy. This method helps clients rest easier in crazy markets or bear markets. One of the keys to this withdrawal strategy is making sure that you have enough in conservative assets to cover a few years of expenses. That way you don’t have to worry about bear markets dragging down your portfolio assets when you need to withdraw money. Click here to see a video that more fully explains this strategy.
And as always, just make sure that you check with your accountant or financial advisor when planning retirement investment strategies. It’s so important to get a second opinion before you do anything. If you’d like help developing your best investment strategy, reach out to me for a free planning meeting to see what makes the most sense for your specific situation.