Your Portfolio During Retirement

At the opposite extreme of investments for young investors is money being saved for retirement. You’re not going to spend all of it 10 years, six–nine years, three–five years, or one–three years; it must last the rest of your life. For this investor, the goal is to generate a stable income for the rest of your life. Investing for that goal generally involves a portfolio with 50–70% stocks and the rest in fixed income. Many of my clients use a 60% stocks and 40% fixed income mix, which is a very traditional pension mix.

Let’s consider what happens with a 60:40 ratio in which you are taking a 5% distribution each year. Distributions come from the bond side of your portfolio, so at this point you are holding eight years of income (5% distribution from the 40% of your portfolio invested in bonds = eight years). One reason why we hold so much in bonds during retirement is that it allows us to buy time to weather downturns in the stock portion of your portfolio. You’ll want to be able to hold onto your stocks long enough to benefit from the subsequent recovery.