wife and I are both 66. She has retired and started
Social Security; I am working part time, receiving a
small pension from a previous job, taking dividend
income from a rollover account where I put my 401(k)
funds, and putting off starting Social Security. I also
have some additional funds from stock market investments
is the best thing to do now? I donít like bonds. They
lose value as interest rates go up, and inflation
reduces their actual value. I donít like gold. I
donít like annuities because of their huge hidden fees
and because your balance to pass on to your heirs
deteriorates to zero over time. Savings accounts pay
that leave? Iím over 90 percent in equities, and the
recent 19.8 percent market pullback hit me Ö but a
correction was overdue and things are already heading
back up this year to where Iím only down about 10
percent from the peak. When we take a long-term view,
things always recover and continue going up. Is there
anything else to consider or a better strategy?
A. On its
face, your 90 percent stock position seems downright
dangerous for a sixty-something couple at retirement,
but letís look a little deeper.
monthís quick stock gains were certainly welcomed by
investors, but such a fast turnaround is unusual, and
market experts canít predict whether it was enough to
raise the all-clear flag.
wish there were an historical threshold that proved to
be a definitive Ďbear killer,í but thereís not,Ē
said Doug Ramsey, chief investment officer for the
Leuthold Group LLC, in a note to clients. The
Minneapolis investment firm published a chart this month
showing the recent snapback outpaced the median historic
bear-market rally by nearly four percentage points.
uncertainty, itís important to focus on your capacity
for taking on stock-market risk.
couple, youíre still earning a part-time paycheck,
collecting a pension and Social Security, and you
eventually will collect even more Social Security
benefits. All of those streams of income are non-stock
payments you could consider diversifiers from the
balance those income streams with the IRA, your taxable
stock account and the inheritance, what sort of mix are
we looking at now? For argumentís sake, say your
wifeís Social Security benefit, your own eventual
benefit and the small pension add up to $2,400 a month.
That might reasonably equate to a present value of
around $420,000 today. Add that to your stock
investments and recalculate what percentage of your
overall wealth is in stocks. Some advisers add in
housing wealth here, but letís keep it simple.
think about how you need to use those stock investments.
Are most of your monthly expenses covered by work,
Social Security and pension income, or will you dip into
that money just to meet current everyday bills?
steady income covers 80 percent or more of your current
expenses and there is enough in the other investments to
weather inflation and a few big future expenses, a 90
percent stock allocation starts to look more reasonable,
said Sheryl Garrett, founder of the Garrett Planning
Network. She was also impressed by your delaying of
Social Security and your ability not to panic-sell
during the recent market melt.
sheíd consider a no-frills immediate annuity to
replace the part-time income once that ends, or carving
out a small percentage of the overall portfolio to buy a
deferred fixed annuity to help cover your longevity
risk. Both of these typically are lower cost
alternatives to more complex variable annuities. With
12-month certificates of deposit now paying nearly 2.8
percent (according to Bankrate.com), thatís another
way to mitigate such a high-octane portfolio.