In this three-part series, I’ve discussed how to adjust your investment strategy depending on whether you are just getting started in your twenties and thirties or have made steady progress towards saving for retirement in your forties and fifties.
If you are in your early sixties, now is the time to shift your investing approach to a more conservative strategy. Without a paycheck to serve as your investment safety net, you will need to create one through your investment program. There are two adjustments that I suggest you consider, and it is a strategy that I call the Growth Strategy with a Safety Net.
Part 1- Safety Net
For the safety net, you should consider investing in enough bonds, bond funds and money market to cover three to ten years of annual lifestyle expenses that are not already (or are expected to be) covered by your Social Security or pension payments. To put it on a scale might look something like this:
- 10 years or more = conservative
- 5-9 years = moderate
- 3-4 years = aggressive
Clearly, in today’s environment, nothing in fixed income is paying much in the way of interest. Still, the purpose of this safety net is to keep you from having to sell stocks when they are temporarily depressed due to a bear market. Historically, there is a significant market correction or bear market every three to five years, and the average time it takes the market to recover is fourteen months. To get to that 14-month average, you will have bear markets that take 4-5 years (2008, 2001). So you decide how many years your safety net should cover.
Part 2- Growth Strategy
For the growth part of your portfolio, we will continue to recommend stocks, but now we would like to shift from more growth-oriented stocks to U.S. large-cap dividend-paying companies…more value-oriented. The key is building a diversified basket of at least twenty stocks that have a long-term history of both paying and raising their dividends. It is the consistency of the dividends that will tend to reduce the volatility of the stock portfolio during market downturns.
At this point, unless you are a highly experienced investor and financial manager, it is important to seek professional help from a Certified Financial Planner who can do both a detailed retirement analysis and help you plan and manage your investment strategy.
One final point
It takes a lot of money to replace a paycheck for twenty, thirty years or more. Depending on the amount of Social Security and pension available to you, you will need an investment account equal to ten-to-twenty times your annual expenses. If you expect to spend $100,000 per year, you will need $1 million to $2 million or more of investments.
FOX 6 TALKING POINTS
Investing for the Ages Part III of III: 60’s & 70’s
- Money Market/bond allocation = 3-10 years of annual expenses
- 10 years-plus = conservative
- 5-9 years = moderate
- 3-4 years = aggressive
- Use more conservative stocks…value vs. growth
- U.S. large-cap; dividend-paying companies
- Get help from a CFP
Stewart H. Welch, III, CFP, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC -“Welch”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. Please remember that if you are a Welch client, it remains your responsibility to advise Welch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s web site or blog or incorporated herein, and takes no responsibility.