Investing just prior to Retirement

[minimalist]

Hey everyone,

I'm new to the board and have a question.

When you are close to retirement, say within 5 years, do you change to way to invest incoming cash?

I believe that you should only invest in stocks if you have a minimum of 5 yrs to invest (preferably longer).

So my dilemma is once you get to within 5 yrs of retirement should you stop putting your monthly savings in the stock market?

 

[Dawg52]

Not in my opinion. I believe in the 100 rule which means 100 - your age = the portion you keep in stocks. A target fund pretty much does that for you as it lowers your stock allocation as you get older.

 

[REWahoo]

DOG51 is correct. Everyone's situation is different, but the vast majority of retirees will need to continue to hold a portion of their portfolio in equities if they are going to be able to withdraw a reasonable amount from it and expect it to survive for the 25+ years we hope expect to be in retirement before kicking the bucket.

Have you run your expected nest egg through FIRECalc (http://www.fireseeker.com)? Try varying your holding of equities and see how much you can withdraw annually with none vs. 50% or so.

 

[rs0460a]

Like the others have stated, it all depends on your situation and more importantly, your ability to sleep with the decisons you make 

For me/my wife, who will be retiring within the next 2 years (at age 60), and have been investing "exclusively for retirement" the last 25 years, we've "evolved" over time.  Starting out from CD's 25 years ago, "putting our toe in" the mutal fund market, later to REIT's (that was a bust - of course that was 15+ years ago!), further into sector funds (our largest holding being Vanguard Health care, and a great long-term investment).

When I finally realized that I "could retire" about two years ago (4 years from planned retirement), I moved from an 80/20 portfolio gradually to 60/40, today.  Within the last few months, I reduced my Health Care (33% of my retirement portfolio; a bit less of my wife's) by 22%.  VGHCX (closed to new investors) is still the largest component of our combined portfolio (at around 11-12%) and at the same time, I increased our international fund exposure (where I believe, the future resides  .  I'm planning on "being free" the end of next year  and I don't see any major changes till then.

IMHO, it's not something you do quickly, nor make changes untill you understand what YOU want for the current/future.  I'll be managing our investments (hopefully for a long time in the future) and understand that retirement is just an extension (investment wise) of what you have been doing over the long term.  I don't see reducing my 60/40 mix in early retirement, untill (more specifically if  ) I reach my early 80's.  At that time, my plan (as of today) is to go to a 50-50, or 40-50 mix.

 

[Cut-Throat]

I believe that you should only invest in stocks if you have a minimum of 5 yrs to invest (preferably longer).

This is a true statement. But what you are not considering, is that you are continuing to invest after you are retired.

So your allocation to stocks decreases as you age, as Dog said. But with the possibility of living 40 years or so in retirement makes investing in stocks prudent.

 

[mb]

Minimalist,

A stupid (not meant to insult you intelligence) example to support some of the above opinions.

Assume you do follow the "%stocks = 100-age" rule-of-thumb for asset allocation. Then if at age 60 your current portfolio is only 30% stocks (say there was a bear market) then I think that suggests that you should put new money into stocks. Since even at age 80 you still plan to have 20% in stocks it should give the new stock money time to over come a bear market.

Conversly, if you are over weighted in stocks (because of a bull market) at age 60 I would say that new money should go elsewhere.

This of course assumes that you don't modify your asset allocation based on your opinion of where the market.

MB

 

[mickeyd]

I'm what you may call semi-retired (not working but enjoy temp/PT work at my pleasure while BW still toils for the local school system). I make it a point to invest as much money as I can in stocks (mostly Vanguard TSM). I plan on doing this for the forseeable future. My logic is that when the day comes that I will have to begin tapping my investment stash, I will probably have no opportunity to do much saving/investing as most of my investment activity will involve the withdrawal of funds for living, not increasing my investments.

I understand the importance of long term equity ownership in the form of stocks (or their MF equivilant) so this is my last chance to pump in as much as I can into this part of my investments.