Managing Stock Allocation During Retirement

There is an investment decision that everyone has to make that could cost you millions if you get it wrong. I call it the “million-$ decision.” My last post looked at the unbelievable long-term effects of compounding a diversified, all-stock investment portfolio at about 10% per year, even if you’re spending from it in retirement. $1m grew to over $7m in 30-ish years, net of all fees and a 4%/yr real ($40k plus inflation) withdrawal. Wowzer But a lot of people, and certainly a lot of retired or soon-to-be retired investors, read the post and say “yeah, I’m still not going 100% stock; I need some bonds!” I don’t think almost anyone truly appreciates the impact of your stock and bond decision on your long-term wealth, even in retirement. For years I’ve had five model portfolios I use with clients and show prospective clients—from 100% stock to 50/50 stock and bond, with 85/15, 75/25, and 65/35 wedged in between. These seem like minor alterations of each other, but I assure you they’re not. Consider the previous example I used—a $1M retiree in 1995 wants $40k/yr, adjusted for inflation, over the next three decades, ending Feb 2025. No one ran out of money regardless of the allocation, but there was a staggering difference in the ending values: (Stock/bond allocation) 100/0 = $7.4M 85/15 = $5.8M 75/25 = $4.8M 65/35 = $3.8M 50/50 = $2.7M A $4.7M difference between an all-stock and a 50/50 stock and bond mix? $2M difference between the seemingly indifferent 65/35 and 85/15? A $1M difference between 65/35 and 75/25? No matter how you slice it, that’s a lot of $. In a world where a 2 basis point fund expense ratio reduction elicits a headline, people seem to be completely uninterested and uninformed about the millions of dollars of potential wealth they’re losing by holding too much in bonds and too little in stocks. Yes, bear markets suck, and they happen fairly often—about every five years. And the more you have in stocks, the more you’ll lose, temporarily. But if history is any guide, you’ll eventually make that back, if you hold tight. Is it hard? Sure. Is it entirely possible if you listen to and trust your advisor? I think it is. The purpose of investing is to make as many of your goals a reality as possible. Retiring sooner, with more income, and eventually leaving a bigger inheritance. All of these things are made easier if you get the stock-bond decision right, or make the decision better as opposed to worse (more vs less in stocks). It’s literally the “million-$ decision.” Also realize, you don’t have to make this decision alone. Consider working with an advisor who challenges you to make a better choice. You’ll be glad you did.

Market corrections and bear markets can be stressful—especially if you're in or approaching retirement. But protecting your assets isn’t about guessing when the market will drop; it’s about having a solid plan in place ahead of time. Here’s how: 1️⃣ Maintain a Diversified Portfolio Spread risk across stocks, bonds, and cash so that a downturn in one area doesn’t derail your entire retirement plan. 2️⃣ Keep a Cash Reserve Set aside 12 to 24 months' worth of living expenses in cash or short-term bonds to avoid selling investments at a loss when markets dip. 3️⃣ Use a Bucket Strategy Think of your retirement savings in buckets: • Short-term (1-3 years): Cash & conservative investments for immediate expenses. • Mid-term (3-7 years): Bonds & income-focused assets for stability. • Long-term (7+ years): Stocks for growth to outpace inflation. This strategy helps you avoid selling stocks during downturns. 4️⃣ Adjust Your Withdrawal Strategy Rather than withdrawing a fixed percentage each year, consider a flexible approach—draw from cash or bonds during downturns and let your stocks recover before tapping into them. 5️⃣ Rebalance When Needed Regularly rebalancing your portfolio keeps your asset allocation in check, controlling risk and aligning with your long-term goals. 6️⃣ Avoid Emotional Decisions Panic selling locks in losses. History shows markets recover, so sticking to your plan is key to long-term success. A market downturn doesn’t have to derail your retirement. With the right strategy, you can stay protected and confident no matter what the market does. Let's connect if you want to ensure your retirement plan is built to withstand volatility. Follow for more tips on simplifying your finances to maximizing your retirement! #Personal Finance #FinancialLiteracy #RetirementPlanning

If you're at or near retirement and using target date funds, you might be making a big mistake. Target date funds automatically shift you into more bonds as you age. Sounds smart, right? But retirement isn’t the finish line…It's the start of a 30+ year spending plan. These funds often leave you with too little stock exposure to sustain your lifestyle long-term. When your portfolio can't keep up with inflation, your purchasing power quietly erodes over time. The biggest mistake I see in retirement planning is playing it TOO safe with bonds. But I get it. Market volatility is uncomfortable. But that temporary discomfort is the price you pay to stay ahead of inflation over 30+ years. A healthy allocation to stocks remains the most reliable way to preserve and grow your wealth through retirement. Ironically, trying to avoid risk in retirement often leads to the biggest risk of all: running out of money. Don’t let fear of short-term volatility sabotage your long-term security.

Chart of the week: Build a retirement income portfolio based on ability and willingness to take risk. It's one of the most frequent questions I'm asked... How should I investment my portfolio earmarked for retirement just prior to or during retirement? It comes up all the time, but particularly during times of market or economic stress when uncertainty about the performance of stocks rises. Stocks are still critical in a retirement portfolio, for most investors. But so are more stable investments, in our view, including cash, short-term reserves/investments, and bonds. You could use a general 60 percent stock, 40% bonds and cash "guideline." Or you could personalize your approach. I suggest the latter. The question to ask is... How much money may I need soon, from your investments? This requires creating either an assessment of how much you've been spending, or how much you plan to spend, as well as accounting for other potential income sources such as Social Security, annuity, pension, part-time work, or other sources. 1️⃣ Once you've done this calculation, considering set aside a year of what you'll need over and above those sources of income from your portfolio into cash investments such as a yield-bearing money market account. Spend from this account. 2️⃣ Then, multiple the amount by somewhere between 2 and 4, depending on your tolerance for investment risk. Keep that amount, equal roughly to 2-4 years of withdrawals, in steady investments to provide liquidity (meaning not just the ability to sell the investment, but do it at a price that's not highly dependent on the economy or market) and stability to whether a bear market and/or fund spending if needed from the portfolio. 3️⃣ Last, create and invest a long-term portfolio that includes stocks and bonds based on your risk tolerance and time horizon. This provides growth potential and funds future spending. Consider an example... What if you plan to withdraw about 5% from your portfolio next year and spend about the same amount per year in the next 2-3 years without much change in your income sources? Working backward, using the personalized steps above, this brings you close to a "traditional" 60/40 stock/bonds & cash portfolio used as a rule of thumb for retirement. But on your terms, based on your needs. The chart below provides an illustration. If you need help, as always complete a personalized plan and work with a professional retirement planner and advisor. #retirementportfolio #financialplanning #risktolerance #riskcapacity

Stock markets drop 20% or more about every 6 years. It seems like it's happening more frequently lately. If you're accumulating assets and investing you should see these market drops as opportunities to build wealth. You can now buy stocks at a discount. What do you do if you're a retiree? If your portfolio dropped 20%, you'd need 25% just to get back to even. However, most retirees need to take money out of their accounts. If you follow the 4% rule, then now your account is down 24%. You'd need to earn 𝟯𝟮% to breakeven. How you manage your investments in retirement is critical and the traditional 60/40 can fall short. Here's what you can do. Set up the bucket strategy for your retirement funds. 𝗕𝘂𝗰𝗸𝗲𝘁 𝟭: 𝗦𝗵𝗼𝗿𝘁-𝗧𝗲𝗿𝗺: 𝗦𝗮𝗳𝗲𝘁𝘆 𝗕𝘂𝗰𝗸𝗲𝘁. You set aside two years of expenses in cash. A typical 20% drop takes roughly 20 months to recover. The safety bucket will carry you through this time. 𝗕𝘂𝗰𝗸𝗲𝘁 𝟮: 𝗠𝗶𝗱-𝗧𝗲𝗿𝗺 𝗕𝘂𝗰𝗸𝗲𝘁: 𝗜𝗻𝗰𝗼𝗺𝗲 This bucket is designed to grow at a moderate pace and more importantly generate income. It should be about 40% to 50% in stocks (usually dividend paying) and 60% or so in bonds. 𝗕𝘂𝗰𝗸𝗲𝘁 𝟯: 𝗟𝗼𝗻𝗴-𝗧𝗲𝗿𝗺 𝗕𝘂𝗰𝗸𝗲𝘁: 𝗚𝗿𝗼𝘄𝘁𝗵 This is your growth bucket. You can't be too conservative otherwise inflation will be a problem for you. This is money that shouldn't be touched for 6  plus years. Be more aggressive here. How are you planning on changing your portfolio in retirement? —————————————————————- I’m Derek, a Certified Financial Planner (CFP®)… I talk about uncommon financial strategies with a focus on helping you retire well.

"What should be my portfolio after retirement? I have 1 crore and want to retire." are questions that my clients come up with. Let us take up the first question- "I have Rs.. 1 crore corpus. I'm 50 years old. How much is my safe withdrawal rate so that at the end of my life, at least 1 crore remains?" This is the question I am asked by many clients who have very little corpus. I relied on mathematics to give my reply. I assumed a 5% nflation and return on his corpus to be CAGR of 9.31%. I also assumed he may live for another 50 years ( until the age of 100) Because his corpus is very small, we had to invest 75% of his corpus in risk free securities and 25% of his corpus i n equity mutual funds. The investment in equity mutual funds is to hedge against inflation. For those who want to know what the risk-free options one can invest in so that they can maximise returns, please read my LinkedIn article on " Dare to think beyond FDS". I arrived at a withdrawal rate of 4.92%. I told him that if he can budget his monthly expenditure to Rs. 41,000 per month and a 5% increase in this expenditure every year to provide for inflation, his corpus will be enough. I also reminded him that this annual expenditure must first include the medical insurance premium. Now it is his decision whether to retire, because all facts are before him. General rules when the corpus is less: 1) First, ensure a good medical insurance. Payment of the premium must be the priority. 2) Invest 75% in risk-free securities, but do not forget to invest 25% in equity mutual funds. 3) Know your withdrawal rate and try to be within the withdrawal amount per month. 4) If there are any savings in any months' withdrawal, invest the savings in equity mutual funds. This can be as little as Rs.. 1000 or even Rs 500 The second question I face from my clients is: What should my asset allocation be after retirement? The conventional wisdom is 100- your age. For example, if your age is 60, then your equity allocation should be 100-60=40%. 60% should be in debt. This is where your financial planner can help. I will illustrate with an example for easy understanding. My client's monthly expenditure post retirement is Rs. 2,00,000 per month or Rs. 24,00,000 per year. This is his post-tax income. Step 1: Arrive @ his pre-tax income. His pre-tax income=33,33,333 (2400000/72%). 28% is the assumed effective tax rate. Step 2: Ascertain total corpus- 5.37 Crores in this case Step 3: First Bucket: His first bucket is his 3-year's immediate withdrawal. That is Rs.. 1 crore in risk-free securities Step 4: The Second bucket is his 4th and 5th year withdrawal. That is Rs. 67,00,000 in conservative hybrid instruments and debt instruments . Step 5: The third bucket - Rs. 5.37 crores-1 crore- 0.67 crores 3.70 Crores in equity mutual funds. Step 6: Annual rebalancing of the buckets must be done to fill the shortages in each bucket. This is 69% equity and 31% debt. #RetireEarly,#FIRE,#Investment

Most Wells Fargo employees haven’t heard of sequence of return risk. But for soon to be Wells Fargo retirees, it can quietly derail even the most well-funded plan. Here’s what you need to know and what you can do about it. Use these strategies to: ↳ Protect your portfolio ↳ Extend your retirement savings ↳ Create a solid withdrawal plan Understand sequence of return risk • Early losses in retirement can hurt your portfolio. • Even if the market bounces back, timing matters. • A few bad years can shorten how long your money lasts. Why it’s a big deal • A solid average return won’t fix early losses. • Bad years at the start can lead to big problems later. • Your retirement income plan needs to be strong from the start. Control your withdrawals • A steady withdrawal rate, like 4%, can help. • Pulling out too much too soon makes it worse. • Keep your spending in check to protect your nest egg. Withdraw with a strategy • Where you take money from matters greatly. • In down markets, tapping the wrong account can hurt. • Avoid unnecessary taxes and boost long-term growth. Diversify your investments • Mix stocks, bonds, and cash for stability. • Diversification smooths out volatility. • It cushions the impact of market downturns. Sequence of return risk is real but manageable. Plan ahead. Make smart choices about withdrawals, allocations, and income strategy. Remember. Retirement planning isn’t one-size-fits-all. ☑ It’s personal. ☑ It’s strategic. ☑ And it’s worth getting right. What part of your retirement income plan feels uncertain right now? Drop it below or shoot me a message.