Adjusting Your Mix

IN YOUR 20s, 30s and 40s, you might have invested heavily in stocks because you had a paycheck to cover your living expenses and didn’t need to worry about plunging financial markets. When you retire, you give up that paycheck—and that has big implications for your portfolio. Suddenly, you want not just growth from your investments, but also income.

Later, when we talk about issues facing those age 65 and older, we’ll discuss how you might generate income from your savings while fending off the threat from both short-run market declines and long-run inflation. But to prepare your portfolio and make sure your impending retirement isn’t derailed by a stock market crash, you should probably scale back your investment risk over the last 10 or 15 years before you quit the workforce. An example: While you may have had 80% of your money in stocks in your early 40s, you might move toward a mix of perhaps 50% stocks and 50% conservative investments by the time you retire.

The precise percentages will depend on a host of factors. For instance, if Social Security and any pension income will cover a large portion of your retirement living expenses, you might take more risk with your portfolio—a topic we also discuss in the investing chapter. On the other hand, if the bulk of your retirement income will come from savings or you have little stomach for market swings, you might be somewhat more conservative.

Next: The 80% Rule

Previous: On Track to Retire?