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Common Retirement Questions: Should I Be More Conservative With My Portfolio?

Consider the ninth most common retirement question: Should I become more conservative with my investment portfolio as I near retirement?
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Retirement Daily’s Robert Powell sits down with Dana Anspach from Sensible Money to tackle the 10 most common questions in retirement.

In today’s episode, Anspach discusses the next most common retirement question: Should I become more conservative with my investment portfolio as I near retirement?

Anspach mentions the rule of thumb for portfolios where you take 100 minus your age, and that is the percentage of your portfolio that should be in equities. Anspach proposes alternative ways to alter your portfolio for retirement that will allow you to take the withdrawals that you might need in retirement. One way is to have an appropriate allocation to riskier investments to combat inflation. Additionally, Anspach mentions the 60/40 portfolio - 60% is invested in stocks and 40% is invested in bonds - and adjusting it every year.

And, she reviews the idea of the Retirement Red Zone that was introduced by financial expert, Michael Kitces. “It's the five years leading up to retirement, and the five years right after or the first five years of retirement,” Anspach says. “So he proposes a strategy where as you get close to retirement, you are building up your fixed income holdings, treasury bills, CDs, agency bonds, safe things that are going to mature to meet your cash flow needs, and then as you enter retirement, that bond tent is protecting you from any big market downturns during those retirement red zone years.”

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Anspach talks about the possibility of those with more income and income sources to be more risky with their portfolio, but she says that people might be uncomfortable risking more. It’s better to plan out where your cash flows are coming from and then solve for what has to come out of the financial portfolio. A household balance sheet could be very helpful in figuring all of this out.

Risk tolerance questionnaires might be helpful for making your decision about risks, but Anspach says that people tend to answer in a way that is consistent with the state of the market.

“I'm much more a fan of risk capacity, which is measured by an actual financial planning process, meaning, what is your required minimum rate of return,” she says. “You have to be able to step back from all of that short term noise and focus on the long term, and then your risk capacity becomes a more appropriate measure.”

Anspach finishes by telling people to filter advice from advisers and articles to just information that is relevant to their timeframe. 

Stay tuned for the next most common retirement question, where Anspach discusses what formula or retirement strategy you should use to make sure you don't run out of money during retirement.

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