Is my financial planner crazy?
I recently saw a MarketWatch article recommending that one’s retirement portfolio should be 100 minus their age in stocks or perhaps even more conservative. I am 55 and my husband is 60 and we plan to retire in 5 years which would be Put we say 40% in stock. My current financial advisorum who is a CFP and who we hired recently, suggested this is too conservative and suggested a 75% portfolio in equities, especially given the current bond market. In fact, two other financial advisorsAndThe people we interviewed also suggested more aggressive wallets. I I don’t think there is anything special about our situation. We saved $1.4 millions in IRAs and own two property (one of which will pay off when we retire). Who is right? How do we make a decision with such different advice?
Confused in Virginia
See: I’m 64, making $1,500 a month riding Uber, and nearly $5,000 a month in pensions and Social Security — should I pay off my mortgage before I retire?
Dear Confused in Virginia,
I’ll start by saying no, your financial planner isn’t crazy.
There are thousands of ways to build a retirement portfolio and many rules of thumb that are just that: rules of thumb. The strategy you saw in an article about subtracting your age from 100 is one of them. If you followed that, then yes, your portfolio would be between 40% and 45% stocks, and honestly, that sounds a bit low.
Here’s why: Aside from the current bond market, as your planner said, you’re actually young enough for retirement. And retirement these days is no longer like it was decades ago, when at 65 you handed over your documents and spent your last years on the beach. Today, retirees can expect to live 20, 30 — maybe even more — years in retirement, and they’ll need every dollar they can get to extend their remaining life. If your wallets aren’t aggressive in any way, you risk running out of that money sooner than you want to. A portfolio that is too conservative is just really protecting your assets from shrinking too low. He’s not getting you much in return.
Of course, being too aggressive near retirement doesn’t always feel right, as in a volatile market. You don’t want to lose too much of your balance, especially if you’re going to start drawing on it. In that scenario, known as the risk-return sequence, you’re taking from a portfolio when it’s down and lowering your potential future returns. It’s best to have some cash on hand to draw on when the markets are acting so that your portfolio can be left alone to grow.
The truth is, what counselors suggest and what works for you may not always align. All right. What you need to do is find the strategy that works for you and a qualified CFP will do it. Be clear with your worries and fears, hopes and goals when talking to a professional.
Check out the MarketWatch column “Retirement Hack” for useful advice for your pension savings journey
Some consultants, maybe yours too, might suggest the bucket method, which is where your assets are grouped into separate categories at a time. For example, you would have a very short-term bucket and that would be very conservatively invested money (this could and should still be separate from an emergency fund, which should be easily accessible in case something unexpected happens). Then you would have the medium term investment pool (perhaps it could be something like strategy 100 minus your age). And then you’d have the long term, let’s say over 15 years, and it would be aggressive. The aggressive bucket will work hard to grow that cash for you, but if there’s a dip in the markets and the balance drops a little, you won’t feel it.
These strategies cannot be focused only on returns. They have to make sense to you and how you feel about your money. If the idea of an aggressive, or even somewhat aggressive portfolio stresses you out and all you can do is think about that balance going up and down, then you need to talk to your planner about it. But just know that mentioning aggressive wallets in your point of life is also far from crazy.
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