4 Things Responsible Retirees Always Do for Their Portfolio
Written by
Vance Cariaga
Edited by
Jenna Klaverweiden
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Smart financial planning during your working years can help ensure a comfortable retirement, but it shouldn’t end once you’ve retired.
Maintaining that comfortable retirement throughout your golden years requires continuing to make smart financial and investment decisions. Here are four things responsible retirees always do for their portfolios.
Adjust Your Investments To Align With Your Risk Capacity
An article from Charles Schwab described risk capacity as knowing “how much of your portfolio you can afford to lose without derailing your finances.” In practical terms, it means determining how much cash you’ll need over the next one to four years based on your personal goals and financial situation.
“This is money you’ll want to preserve, since you’ll need it soon and won’t have much time to try to make up for losses,” Schwab noted.
To achieve the right level of risk capacity, you’ll likely need to move some of your money out of stocks and other illiquid investments and put it where you’ll have ready access to it, such as high-yield checking or savings accounts, money market funds, short-term bonds, or certificates of deposit.
Regularly Review Your Asset Allocation
Asset allocation is simply the process of spreading your portfolio among stocks, bonds, funds, cash accounts, real estate investments and other assets. It’s an important part of financial planning throughout your life in terms of minimizing risk and maximizing returns.
When you’re retired, asset allocation takes on added importance because chances are you’re no longer earning a steady paycheck. Your assets must serve as both an income producer and a financial life raft, which means you should shy away from risky or volatile investments.
Once you hit your 60s and beyond, your asset allocation should “emphasize capital preservation with some need for income with bonds and cash, while maintaining some stock exposure to support growth for future needs,” according to Community America Credit Union.
Hire a Professional
If you have the money to spare, it’s a good idea to hire one or more financial professionals to help with your portfolio, taxes and estate planning, according to Melissa Murphy Pavone, CFP, CDFA, founder of Mindful Financial Partners.
“Sound decision-making in retirement is rarely about one account or one strategy,” she told GOBankingRates. “A financial planner who understands your goals, risk tolerance and lifestyle needs can help keep the portfolio aligned with your long-term plan. When your team is aligned, every decision — from required minimum distributions to gifting strategies — supports tax efficiency, income stability and estate goals.”
Develop a Tax-Efficient Withdrawal Plan
As Schwab noted, not all investments are taxed the same way. That’s why it’s important to develop a tax-efficient withdrawal strategy.
Here are some of Schwab’s recommendations:
- Take your required minimum distributions (RMDs). When you are 73 or older, you need to make RMDs on certain accounts — such as traditional IRAs and 401(k)s — to avoid tax penalties.
- Tap into interest and dividends. You can cash in interest and dividends from your taxable accounts if you need the money. But it’s best not to touch the original investment so it can keep providing growth and income.
- Liquidate Roth accounts last. You don’t have to worry about RMDs with Roth IRAs or Roth 401(k)s, and withdrawals are tax-free beginning at age 59 1/2 if you have held the account for at least five years. For these reasons, it’s a good idea to keep your Roth accounts intact as long as possible.
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