By Echo Huang, CFA, CFP, CPA
It takes years to accumulate and grow your nest egg with disciplined saving and investing to an amount where you finally feel comfortable hanging up your spurs and starting the next phase of your life, Retirement. Now you are about to start ticking off the items on your bucket list; perhaps traveling with family to amazing destinations, pursuing your passion in music or the arts or volunteering with some non-profit organizations. Your portfolio, on the other hand, must continue to work hard for you in order to last at least your lifetime, and that can be 30 years or more.
In this post, I would like to share what I think you should consider to review your portfolio and make adjustments as needed.
Although it's hard to go very wrong with a simple 50% stock/50% bond mix, there aren't any one-size-fits-all asset allocations for retirement portfolios. An individual's age, retirement income such as social security and pension income, withdrawal rate, and risk profile, among other factors, can all dictate higher or lower equity or bond weightings.
- Allocation to Equity (stocks). Assume that you have an average appetite for risk, you can take your age, subtract from 110 to determine how much of your portfolio should remain in stocks. For example, if you are age 65, then allocate 45% to equity and 55% to bonds and cash. If you have longevity gene in your family history and your personal life expectancy is over age 90, consider using 120 instead of 110 to calculate your equity allocation. As a general rule, you don't want to have too much money tied up in cash, and while you most definitely need an emerging fund going into retirement, that money should be in its own separate account.