As our life expectancies have increased, our years in retirement have also increased. If your plan is to retire at age 62, for instance, you need to be prepared to have a portfolio that will last for your lifespan, possibly age 100. Unless you are retired from the government, pension plans are becoming a thing of the past. You will need to supplement Social Security with your own savings and retirement plans.
There is much written about asset allocation, or the mix of stocks and bonds in your portfolio. You may have read articles urging “aged based” asset allocation, or increasing your allocation to bonds as you get older. The historical ten-year equity return through 12/31/2009 is 10.3% and the bond return is 5.18%. Equities, of course, have more volatility than bonds and the last 18 months has been an equity roller coaster ride. Many investors now view the equity market with apprehension and caution, wanting an increased bond allocation. Unless you have extreme wealth, a large fixed income allocation may not be a smart strategy. A 30 year time horizon, with 30 years of inflation, means you will need enough growth to meet those challenges. Everyone has a different situation that must be evaluated before an allocation is chosen. Some investors have money they will never need, so essentially the investment is for their children or grandchildren, warranting perhaps a 100% equity allocation. If you are concerned about your allocation or would like to discuss this further, please contact your advisor.
Barbara Gray, CFP®