Back when the average retirement was significantly shorter, the traditional approach of gradually shifting your portfolio from equities to fixed income and cash equivalents the nearer you got to retirement worked. It served to mitigate investment risk at a critical juncture where you would no longer have enough working years remaining to recover from a significant market downturn.
Transitioning from saving to spending
Before you transition into retirement, it’s important to have a firm understanding of your guaranteed income sources (think Social Security, pensions, and annuities) and your non-guaranteed income sources such as tax-deferred retirement savings, taxable accounts, and CDs.1 You’ll also want to estimate how much income you’ll need to cover essential needs like food, shelter, and healthcare, as well as other “wants and wishes”—like travel, charitable gifts, and a legacy for your heirs.
Ideally, you may want to align guaranteed income sources to all of your needs and some of your wants, allowing your portfolio assets to be invested less for short-term income and more toward long-term growth. Similarly, you can afford to be more invested for growth with assets that won’t be needed for another 15 to 20 years than those assets that need to generate income over the first few years of retirement.
Your Premier Banker can be an invaluable partner, working with you prior to or early on in your retirement to more clearly define and quantify your retirement and legacy goals. Together, you can earmark income sources and appropriately structure your investments to give you the opportunity to achieve your goals with an appropriate level of investment risk.