s

Retirement Planning

Preparing Your Portfolio for Retirement

By Scott D. Serfass  

Think about this analogy: When an airplane is preparing to land, it doesn't descend 30,000 feet in a matter of seconds. Rather, it happens gradually. The pilot adjusts to the landscape and weather conditions to assure a soft landing. In the years leading up to retirement, you should begin to treat your investment portfolio in a similar manner. Prepare ahead of time to protect your assets and adjust as dictated by market and economic conditions to help assure a soft landing in retirement.

Adjusting your portfolio means taking steps to "downshift" as retirement nears, reducing some of the risks that may exist in your asset mix. While you were focused on building wealth in the years you accumulated savings for retirement, your focus should change as you approach the end of your working years. It's important to protect the wealth you've worked hard to build and position your portfolio to generate your retirement paycheck.

Dealing with unpredictability

Money invested in assets that vary in value, including stocks and bonds, are subject to periodic fluctuations. In prior years, you may have had time to ride out any market turbulence and overcome short-term losses once markets recovered. If you wait until retirement to adjust your portfolio, you may be surprised by an untimely market downturn. This unpredictability could result in a "hard landing" for your portfolio, leaving you with less money in retirement as compared to your plans.


For example, a couple with $1,000,000 saved for retirement may plan to withdraw $40,000 each year from that account, (assuming they withdraw four percent of the principal value annually to sustain 25 years in retirement). If the money was all invested in stocks and the portfolio sustained a 25 percent decline just prior to retirement, the value would drop to $750,000, leaving the couple with $30,000 a year. By contrast, if they positioned the portfolio more strategically prior to retirement, they may have protected themselves, at least in part, from the market's downturn.

A gradual process

The process of shifting from accumulating wealth to an income-generation focus in your portfolio should happen over time. One approach is to gradually reduce your positions in assets that are subject to greater market volatility in the years leading up to retirement. For example, that may mean reducing your portfolio's exposure to stocks while increasing positions in fixed income investments.

However, not all your money needs to be moved out of stocks, even in retirement. Equities historically have offered more growth potential than many other types of investments. Given today's long life expectancies, you want to be prepared for the likelihood that living costs will be higher 20 or 30 years from the time you begin retirement. For this reason, stocks may still make sense for your situation. You may want to reduce your emphasis on investments that seek to maximize capital appreciation and emphasize stocks that tend to be less volatile and pay competitive dividends.

Other strategies may come into play too, such as annuities that provide lifetime income in retirement, or alternative investments that can diversify your portfolio. A financial advisor can help you determine a strategy that suits your specific circumstances as you prepare for a smooth retirement landing.

Credit Repair Forms

AARP RSS FEED

Living On a Budget and Tips to Save Money

Buy it now or roll the dice? ... For these two women, it's a perplexing choice ... You are leaving AARP.org and going to the website of our trusted provider. ... The provider’s terms, conditions an...

Four Ways to Protect Your Identity and Privacy

You are leaving AARP.org and going to the website of our trusted provider. ... The provider’s terms, conditions and policies apply. ... Please return to AARP.org to learn more about other benefits.

Tips from Frank Abagnale on Avoiding Romance Scams

You are leaving AARP.org and going to the website of our trusted provider. ... The provider’s terms, conditions and policies apply. ... Please return to AARP.org to learn more about other benefits.

Medical Office Data Breach Exposes Patient Records

AARP's fraud expert shares how to secure your personal health data ... You are leaving AARP.org and going to the website of our trusted provider. ... The provider’s terms, conditions and policies a...

Frank Abagnale's Advice on Avoiding Impostor Scams

You are leaving AARP.org and going to the website of our trusted provider. ... The provider’s terms, conditions and policies apply. ... Please return to AARP.org to learn more about other benefits.

How to Secure Your Wallet and Prevent Identity Theft

Protecting your personal information helps stop identity theft, experts say ... You are leaving AARP.org and going to the website of our trusted provider. ... The provider’s terms, conditions and p...

Fidelity Retirement Funds Buy More International Stocks

Big investment firms are increasing their exposure. ... You are leaving AARP.org and going to the website of our trusted provider. ... The provider’s terms, conditions and policies apply. ... Pleas...

How Does Medical Debt Affect Your Credit Score?

Other types of debt are penalized more, but delinquent medical bills can still cause credit pain ... by Andy Markowitz, AARP, August 8, 2019 | Comments: 0 ... Don't prioritize medical debt over oth...

What Are the Causes of Surprise Medical Bills?

Out-of-network charges and undetected errors can drive up your health care costs ... by Fran Kritz, AARP, August 8, 2019 | Comments: 0 ... How surprised you are by the size of a medical bill may be...

Learn How to Avoid Surprise Medical Bills

Before a planned procedure, ask what the doctor charges, and call both your insurer and the medical office to verify that the treatment is covered and the doctor or facility is in your health plan'...