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I'm Nearing Retirement at 62. How Should I Arrange My Portfolio at This Point?
Eric Reed
6 min read
A man who is approaching retirement reviews his investment portfolio.
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For many people, retiring feels like crossing a finish line. You have spent your working years building wealth, and now it’s time to manage and spend that money. By and large, this is true – your financial perspective will change significantly once you no longer have a normal stream of income. However, it’s important to remember that retirement involves many of the same concerns and focuses that you’ve always had with your money, from tax planning, household budgeting and even inflation.
Your asset allocation and portfolio composition remain just as important in retirement as they were during your working years. And if you’re 62 and planning to retire soon, structuring your portfolio appropriately is paramount to ensuring your money lasts.
Continue Investing for a Balance of Growth and Security
Retirees in America can expect an average lifespan in their 80s. This depends on several factors, but ultimately if you are 62 you should anticipate living another 20-25 years, and hopefully significantly more.
This means that you need to plan for longevity and continued portfolio growth. One of the essential issues here will be to find a good balance between risk management and accumulation. You want to keep this money safe, but you don’t want it to spend the next 25 years languishing in a savings account, earning less interest than some investments can offer.
One approach, for example, is to break your portfolio into sections or buckets based on your wants, needs and capacity for growth. Calculate the monthly budget you will need for necessities, then plan to generate that income through secure assets like bonds or annuities. Take another section of your portfolio and earmark it for your lifestyle – the money you want but could (literally) live without, and invest that in a more mixed collection of secure and growth assets.
Take the remainder and put it into a long-term growth portfolio more focused on equities. This is your future money, the growth that will keep building your wealth against future spending and inflation.
Whichever way you choose to structure your portfolio, the core issue is to balance your competing needs for security and growth. Use more secure assets to pay the bills and use more speculative assets to build ongoing wealth, because retirement is not the end of your money management. It’s just the next phase of it.
Thinking about retirement means thinking in longer terms than most households are used to. Instead of planning for the coming months, it’s time to plan for the years and decades that lie ahead. This means paying attention to long-term costs.
Among other issues, you’ll want to anticipate inflation. Even at the Federal Reserve’s 2% benchmark rate, inflation will double your cost of living every 35 years or so. These costs of living increases are one reason why you should plan for growth, not just security, in your portfolio. Your money needs to keep pace with the rising costs of goods and services.
While you’re at it, don’t forget about taxes. Unless you hold assets in a Roth portfolio, you will pay income taxes on all of your withdrawals. This is an easy asterisk to miss, so don’t forget that $100,000 in distributions will mean living on more like $70,000 – $80,000, depending on where you live. Based on your tax status and cash on-hand, a Roth IRA conversion might help you mitigate those taxes significantly.
Finally, there’s the longest-term planning of all. You don’t necessarily have to begin complete estate planning at 62, at least not beyond the basic assignments all adults should have in their desk drawer. But, it is something to prepare for. Sooner rather than later you will want to create a true estate plan, and as you structure your portfolio for growth and drawdowns, make sure to anticipate it.
Stay on Top of Budgeting
Your portfolio is a source of income, but it’s important to stay on top of your spending, too. So keep an eye on your household budget.
As you enter retirement, plan out your household’s budget. How much do you spend? What do you need? What do you want? What kind of lifestyle do you want to have? All of these issues will be important as you move to a more fixed income with fewer opportunities to give yourself a raise in the years ahead. As noted above, this kind of budgeting is also essential for portfolio management. You will need to know your needs to understand how you can invest around growth and security.
While you do, don’t forget to anticipate areas of new or growing costs – specifically, healthcare. You May need additional insurance, including gap insurance or long-term care insurance, and these will add new monthly costs.
You may also have increased out-of-pocket health care costs as well. Hopefully, these expenses won’t set in immediately, but you should budget for more medical spending as the years go on. This money will have to come from somewhere, and the sooner you plan for it the better you can afford it. A financial advisor can help you anticipate these expenses and make a plan for paying for them.
Bottom Line
A woman looks over her monthly finances using a budgeting app on her phone.
As you enter retirement, it’s important to start planning for how your spending, budget and investments will change. Calculate your spending and what kind of investing you need to meet that budget, because the end of work doesn’t mean the end of managing your money. The answers will help inform how you structure your portfolio and allocate your assets.
Retirement Portfolio Management Tips
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
We spend so much time focused on how to save and invest for retirement that it’s easy to forget about the importance of how you invest during retirement. This kind of investment is critical, so it’s important to learn how to do it.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid -- in an account that isn't at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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