The Pre-Retiree Portfolio Tune-Up

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Please note the publish date of this blog. Financial information, market conditions, and other data mentioned in this post may no longer be accurate or relevant.

If you’re a baby boomer who is about to shift from being a saver to a spender, you have at least one question on your mind: “Is this market rally going to turn into a market correction the day after I slice into my retirement cake?” It’s the perfect storm for retirees. So am I saying a recession is coming? I have no idea, and it’s nothing you can control or predict. But there are a few things that are in your control and should be addressed before a recession, not during one.

Portfolio Tune-Up

There’s no better time than now for you baby boomers to reassess your tolerance and need for risk. Why? First, you’re coming off of several years of positive investment performance and thinking more rationally than you will during a market correction. Second, you’re approaching what is usually one of the most exciting and scary times in a person’s life—the point where your net worth reaches its peak. The right blend of stocks and real estate will help you keep pace with life’s rising costs (inflation) over the next few decades, and the right mix of bonds should protect you against a stock decline like the one we saw in 2007–2009. The lower your spending intentions, the less exposure you will need to investments that cause you stress.

Convert Assets to Income

If you cannot be flexible with your spending, or if you struggle to stay disciplined in hard times (what did you do in 2002 and 2008?), now is the time to face that reality. You may be well served by converting a small portion of your portfolio to an immediate fixed annuity to produce an income stream for your essential expenses (mortgage/rent, groceries, medical, etc.). But remember that there is no free lunch with any “guaranteed income for life” products—a fixed monthly check feels good until you suddenly realize that stamps cost $1 and gas is $10 per gallon. You will either need to be ready to reduce your spending a bit or take more risk with the rest of your assets. And unless you pay extra fees for bell-and-whistle annuity products, there’s no turning back once you buy one.

Relax

Airplanes are off course 90% of the time—they just make course corrections until they land. If you are told that your assets have an 80% chance of outliving you, it means that 80% of the time you can spend well beyond your estimates and/or your loved ones will receive an inheritance. The other 20% of the time you have to be open to making the occasional modest sacrifice (reduced spending for a year or two, taking out a reverse mortgage, selling the house and renting, etc.). If your portfolio is properly constructed and maintained, and you can resist the urge to speculate on the direction of the market, you will always be off course, but you will still land safely.

Disclosure

Abacus Wealth Partners, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Abacus Wealth Partners, LLC by the SEC nor does it indicate that Abacus Wealth Partners, LLC has attained a particular level of skill or ability. This material prepared by Abacus Wealth Partners, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Abacus Wealth Partners, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Abacus Wealth Partners, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax, legal, and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Abacus Wealth Partners, LLC is not an accounting or legal firm. Please consult with your tax and/or legal professional regarding your specific tax and/or legal situation when determining if any of the mentioned strategies are right for you.

Please Note: Abacus does not make any representations or warranties as to the accuracy, timeliness, suitability, and completeness, or relevance of any information prepared by an unaffiliated third party, whether linked to Abacus’ website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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