Threats to a Fulfilling Retirement

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We do not recommend retirement portfolios that are overly conservative. Studies suggest that 75% equities at age 65 provide a better chance for retirees to meet their goals than only 50% in equities.

I’ve written past articles entitled, “Cash Has Been the Riskiest Investment” because of inflation and “Spending Retirement Income Can Be Risky” about how if you spend all of the income your portfolio generates your portfolio will quickly lose ground to inflation. Such back of the napkin calculations fail to take inflation into account and can cause retirees to fail in their retirement.

You cannot afford to fail in your retirement.

It was therefore with interest that I read Giorgio Caputo’s and Robert Hordon’s article in InvestmentNews entitled, “Threats to a fulfilling retirement” which read in part:

An evolution toward a fixed-income-heavy asset allocation is thus a common practice in retirement planning. However, the risks and limitations of this traditional approach may not be fully appreciated.

First, there is the destructive impact of inflation.

Second, there is the risk of capital loss. … Decades of yield compression have brought long-term interest rates in the United States close to zero. If long-term rates revert to levels seen in the early 2000s, owners of 10-year Treasuries and similar instruments could witness marked-to-market value declines in excess of 25%.

Equity volatility is often cited as a key reason that some retirees favor a traditional fixed-income-oriented portfolio. Enduring some volatility may be necessary in seeking to avoid the loss of purchasing power due to inflation.

We recommend having between 5 and 7 years of safe spending in stable fixed income investments. And then put everything else that has a time horizon of 8 years or longer in appreciating assets. This provides the best balance between sleeping well tonight and eating well in ten years.

Make sure you see a comprehensive wealth manager when you are between the ages of 50 and 65 as you are approaching retirement.

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President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.