I keep cash separate, out of the Asset Allocation, and primarily think about how much is needed for the next 12 to 24 months. The amount of cash needed is influenced by social security and possible pension payments.
Breaking down the 60% equities-gold-consider a broad commodity fund, but consider not to invest more than 5% of your total equity allocation into commodities.
REIT's-yes I like them too. Need to consider them as a long term holding due to volitility of prices.
For REIT's -no more than 15% of the equity portfolio-the % is based on your Risk Tolerance. If you're interested, there is a Risk Tolerance questionairre at Vanguard.com that can give you a rough Broad Asset Allocation.
Within Stock's 60% -an allocation to Large company stocks and small coumpany stocks.
40% Bonds- Consider some high yield-no more than 15% of bond allocation. Right now I'm looking at short term and intermediate term corporate bonds. You may want to add some government bonds here.
60% Stocks- Consider including International Stocks-broad selection both developed and emerging markets. 10-20% of total stock allocation is OK. So much is unique to my clients, that it's tough giving you "general guidelines". Hope this helps.
And another question from Steve
Steve, the risk of rising rates has a lot of us concerned too. One option is to move some of your bond funds to Short Duration bond funds. These pay less in interest but typically hold up better in rising rate environments.
Steve, I also would recommend you seek out a good fee only advisor who might help you put a plan together for your hole portfolio. Trying to time the market, from one category to another can be dangerous. Remember when rates rise it usually means stocks are doing better, but they are more volatile, which is why I suggest the advisor.
Alright, here's our next question from Trevor when you're ready
Treavor, a safe withdrawal rate is 3.5% from your investments. If your total is 2 mil then you should be safe begining your income at $70k per year not including your pension.
Treavor, I should also specify that the 3.5% withdrawal is based upon your total portfolio earning a moderate 7.5% annual return. If you are all in CD's this will not work
Thanks, all. Ready for our next question from Ralph?
Ralph, income gap? I'm assuming you need to generate more income to meet expenses. Imediate annuities may help you in the short term but they do not typically rise with inflation and you give up control of your money. Be very carefull and check with an advisor before beginning one.
Ralph, depending on your situation and risk tollerance you may also be able to make up the difference by adjusting your portfolio to allow for more growth. If you couple this with some short term spending adjustments you may find you have more down the line, but check with an advisor first.
Ralph, if you have an income gap, the first step would be to go to your portfolio return for the difference. If you feel uncomfortable with regular withdrawals or want a “surer” stream, an immediate annuity for PART of your portfolio might work but it depends on your age. Interest rates are low now and thus immediate annuity returns are low. They go higher when you are in your 80s when much is a return of capital. Managed payout funds are being managed to provide a certain stream of income but there is generally not a guarantee. Check with an advisor before using these tools.
Ralph, income gap-I assume you mean-- you need additional income over your fixed sources of of your pension and social security. The question is what are your fixed income sources as a percentage of your needed retirement income. And what is your risk tolerance? Annuities may tend to have relatively high set up costs. Consider a low cost provider of annuities-Vanguard.com and others.
You may not want ALL of your income for your retirement expenses to be fixed because you give up long term growth to cover long term inflation. Consider a "comfortable" balance of fixed compared to variable (income from a stock/bond portfolio) income.
Thanks, Chad and Heidi. Here's one about annuities from Stan
Stan, what tells you that an annuity might make sense? Do you have a diversified investment portfolio that will produce income for you? Also, social security is an annuity. You may not need an annuity. They are expensive and complicated contracts. I would recommend that you talk to a fee-only advisor to discuss your options.
Annuities can be complicated and expensive, so you are right to be cautious. Fixed annuities are basically long term CDs and will not keep up with inflation. Variable Annuities have mutual funds in them to allow for more growth. Because an annuity has higher fees due to the insurance componet you typically do not want to put more than a third of your portfolio in it.
Annuities also now have lots of riders (additional features) which can also increase the expense. Remember, the more guarantees you want the higher the costs. If you can carry some of the risks yourself then your can save some money. A fee only advisor can help you determine which risks you can carry and which to pay the insurance company to carry.
Here's our next question from Ron F
Ron, can you be a little more specific? Are you talking about withdrawing from your retirement plans early?
Ron, "bridge strategies" I look at are bond type ladders that have specific maturities for specific income needs. I look at them for clients that are deferring their social Security from age 66 to 70.
Here's a follow up from Ron
Another "bridge strategy" I may look at is setting up bond funds that have different durations. Amounts and timing of use are specifically calculated and An example is some funds are in a money market fund, some in ultra short term, and short term bonds.
The child in medical school, is there an alternative source of funding for their education. This ia likely impacting your retirement.
Underwater on your residence-are you familiar with the HARP Program?http://realestate.aol.com/blog/2012/03/19/harp-2-0-learn-if-you-qualify-for-relief-due-to-new-changes/
Underwater is not a problem in the HARP Program-but you need to be current on your payments. You may be able to get your interest rate reduced.
Ron, I would highly recommend NOT going into debt.
Ron, if your expenses exceed your income you can reduce your expenses or increase your income or go into debt. If you have assets, you can sell them. If you have retirement plan assets, and you need to withdraw, there are a few options where you would not incur penalties but I would caution you that these would be a last resort and can impact your retirement.
Ron, yes, you're right -really focus on NOT drawing on your retirement funds early.
Planners, when you're ready, here's another question from Grace
Hi Grace, my understanding here on Social Security is for you to draw on your spouses benefits, the spouse needs to be "eligible" or he'd need to be 62 and you would need to be at least 62.http://www.ssa.gov/retire2/yourspouse.htm