Investing for retirement means allocating your money across the different types of investments to achieve the twin goals of accumulating enough money for retirement then making sure you don't run out of money once in retirement.
A retirement portfolio should be managed on the basis of your accumulation and distribution phases. The Accumulation Phase is the time period when you are saving and investing money to reach your goal. The Distribution Phase is the time period when you are withdrawing money from your investments once the goal is achieved.
The following is an example of a retirement portfolio management based on someone with the following information:
Time Horizon: 30 Year Accumulation Phase
A retirement portfolio should be managed on the basis of your accumulation and distribution phases. The Accumulation Phase is the time period when you are saving and investing money to reach your goal. The Distribution Phase is the time period when you are withdrawing money from your investments once the goal is achieved.
The following is an example of a retirement portfolio management based on someone with the following information:
Time Horizon: 30 Year Accumulation Phase
Risk Tolerance: High
Goal: Retirement
Assumption: The Client is 35 Years Old and will have a 30 Year Distribution Phase.
----------------------------------------------------------------------------------------------------------------------------------
Accumulation Phase:
Accumulation Phase:
Years: 1-25 Years: 26-30
Growth- 40% Growth- 35%
Growth & Income- 40% Growth & Income- 45%
Income/Cash- 20%* Income/Cash- 20%*
* 2%-3% Cash
---------------------------------------------------------------------------------------------------------------------------------
Distribution Phase:
Years: 1-5 Years: 6-10 Years: 11-15 Years
Growth- 35% Growth- 25% Growth- 15%
Growth & Income- 45% Growth & Income- 40% Growth & Income- 30%
Income/Cash- 20* Balanced- 5% Balanced- 15%
* 2%-3% Cash Income- 25% Income- 35%
Cash- 5% Cash- 5%
Years: 16-20 Years: 21-25 Years: 26-30
Growth- 10% Growth- 5% Growth- 0%
Growth & Income- 20% Growth & Income- 10% Growth & Income- 0%
Balanced- 20% Balanced- 30% Balanced- 40%
Income- 45% Income- 50% Income- 50%
Cash- 5% Cash- 5% Cash- 10%
Note- These allocations can be adjusted during times of extreme and prolonged market declines
-----------------------------------------------------------------------------------------------------------------------------------------Note- These allocations can be adjusted during times of extreme and prolonged market declines
As you notice in our example above, the accumulation phase portfolio changes very little. The purposes here is to focus your attention on growing your money. This means a
portfolio that is heavy on growth and growth & income investments. However, once the distribution phase is reached, there are frequent adjustments. The focus has now become generating income to live on, preservation of money for unforeseen issues, and continue growing your funds so as not to run out of money. Therefore, an increased use in balanced and income investments over time is now in place.
Investing is key for a comfortable retirement. An investment professional can help you put together and manage a portfolio to achieve your retirement goal.
Disclaimers
- I.F.S.G. is a fee-based registered independent advisory specializing in investments and life insurance solutions.
- I.F.S.G. does not give tax advice. You should consult your tax professional before making any financial decisions.
- Securities provided by Trade PMR. Fixed income products provided to Trade PMR by Advisor Asset Management, Crew & Associates, and JBB Financial.
- Investing Money in securities exposes investors to risks including loss of principal and past performance is not an indicator of future returns. Investors should carefully consider investment risks, objectives, charges, and expenses.
