10 Tips for Current Retirees – Tip 6- Don’t Base Investment Allocation on Your Age

Wealth Advisor

In this video, Jamison Smith, a wealth advisor at EWA, emphasizes that your investment allocation in retirement should not be solely age-based. Instead, it should be tailored to your individual goals, spending patterns, and financial circumstances. Jamison provides an example of a retiree with $5 million in assets, explaining that a one-size-fits-all 60-40 portfolio allocation may not be appropriate. He recommends a more customized approach, considering factors like the need for safe assets to cover several years of expenses while allowing for long-term growth in equities. This illustrates the importance of a personalized investment strategy in retirement planning.

Video Transcript

Hi, I’m Jamison Smith, a wealth advisor here at EWA. This is a continuation of our series, which is Ten tips for retirees or anybody that is getting ready to enter retirement. So this tip is that your investment allocation or investment strategy should never be age based.

Our opinion is that it should be based on your goals, your spending patterns, and a million different things that impact your financial plan. So we think there’s a lot of blanket recommendations in the industry, and one is that you’ll read about online.

As you’re entering retirement or get to the age of 65, your portfolio should automatically default to a 60 40 allocation. We think that couldn’t be farther from true, and we’re going to walk through a real life example to explain why.

So in this situation, imagine we have a client worth $5 million. What we have found is that a lot of times the best savers are the worst spenders. So this person worth $5 million. They may only need $150,000 per year to live their lifestyle.

Well. If they have 75,000 from Social Security, that’s guaranteed to come in no matter what the market’s doing, whether it’s up or down. They really only need to pull 75,000 a year from the portfolio to bridge that gap on top of Social Security, obviously adjusted with inflation as well.

So if this client went to the blanket recommendation of a 60 40 allocation, in our opinion, they would be far too overexposed in fixed income. We recommend having seven years of backup in living expenses and safe assets to weather any storm in a market downturn.

So in this situation, this would be 600,000 that this client should have in fixed income or something similar like cash value inside of a life insurance contract or another safe asset. And that would actually equal to about an 85.

15 investment allocation, meaning 85% is in equities and 15 is in fixed income. A lot of people would think a retiree that’s far too aggressive, but the reality of it is they’re most likely never going to spend all 5 million of their assets, especially if they’re spending $150,000 per year.

So majority of their money is going to be long term. If you retire at 65, you want it to grow for the next 30 to 40 years, depending on life expectancy, that this 15% would be enough to send them the distributions from their account every year and insulate them from a stock market downturn.

So your investment allocation is something that’s very important to get right. If numbers were a little bit different and the net worth wasn’t as high and they were more conservative than they needed to be, they would run the risk of not having enough equity exposure to give them enough growth to last them the entire length of retirement.

So investment allocation is something that should be super specific to your situation and a number of factors should be taken into consideration, which would be a reason you should consult with a financial advisor, especially if you are in retirement.

If you have any questions on this video, feel free to reach out.

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10 Tips for Current Retirees

10 Tips for Current Retirees - Tip 1- Have a Team of Trusted Advisors
10 Tips for Current Retirees - Tip 2- Recognize Your Investor Bias
10 Tips for Current Retirees - Tip 3- Be Aware of Annuities
10 Tips for Current Retirees - Tip 4- Have a Game Plan for Long Term Care
10 Tips for Current Retirees - Tip 5- Track Monthly Spending
10 Tips for Current Retirees - Tip 7- Consider How You Will Spend Your Time
10 Tips for Current Retirees - Tip 8- Have a 7 Year Spending Back Up
10 Tips for Current Retirees - Tip 9- Have a Game Plan Around Social Security
10 Tips for Current Retirees - Tip 10- Plan Your Travel

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