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When to Start Playing It Safe With Your Retirement Savings

When to Start Playing It Safe With Your Retirement Savings

When it comes to retirement savings, at some point you transition from aggressive investments to a more conservative portfolio. The big question though, is when do you know it's time to make that move, to play it a bit more safe with your nest egg?

It's not all about age

Retirement is such an individual adventure it's hard to make generalizations because everyone's situation is different. But that said, there are some guidelines that can help you make up your mind.

For one thing, realize that conservative or aggressive does not depend on age, says Matthew Tuttle, CEO and Chief Investment Officer for Tuttle Tactical Management. “What is conservative is a moving target,” he says.

Take for example, he says, the fact that for 30 years bonds have been conservative because they didn't go down. “Does that mean they will always be conservative? No. They didn't go down because interest rates went down in a steady drop. Now interest rates are going up, does it make sense for someone near retirement to shift to bonds in a rising interest rate environment? No,” he says.

Conservative is about being in harmony with market trends. Under that definition, you should always be conservative, he argues. “Just like you wouldn't want bonds now, you wouldn't want stocks in 2002 in 2008. So every investor, regardless of age, should be in harmony with market trends.”

Age is but one component to consider when configuring an investor's asset allocation. “It's also important to consider an investor's risk tolerance and their need for income,” points out Ken Mahoney, president of Mahoney Asset Management. “Depending on how much income per year an investor needs will affect how much of their assets are used to provide that stream of income and which assets are going to provide the most consistent, steady stream,” he says.

Shift gradually

Just because you have entered, or will soon enter retirement by itself, is not a reason to adjust to the portfolio to a more conservative posture, says Dan Crimmins, co-founder of Crimmins Wealth Management.

Generally, shifting a portfolio occurs gradually over time. “Unless an unforeseen event occurs, I hardly ever recommend a client shifts a portfolio dramatically at any given time. We age gradually, overtime, not in 10 year increments. Portfolios should be treated the same way,” says Derek Holman, managing director of EP Wealth Advisors.

While he doesn't like to use general formulas, as a starting point he classifies investors in three categories – savers, approaching retirement (retiring sometime in the next decade) and retired.

He says savers should think about keeping a set amount in fixed income as a safety net. For some guidance, he suggests that it be a figure that would cover a set net of months of living expenses, anywhere from 6 months to five years, depending, he says on job security, income variability and other factors.

Those approaching retirement should think about how much they will be drawing down on the portfolio during retirement, in addition to considering a safety net in case work income terminates earlier than expected. This ratio between the withdrawal rate and the safety net changes as they get closer to retirement.

Holman says that retirees should mainly focus on their withdrawal rate. An oversimplified formula, he says, would be to take the annual withdrawal rate and multiply it by 10 and place this amount in bonds.

Don't pull back too soon

The big risk facing retirees is longevity risk – the risk of outliving one's assets. “Medical advancements and the fact that people are living longer, some up to 30 years past retirement is significantly increasing the amount of money that people need to save,” says Bob Stammers, director of investor education at the CFA Institute, a global nonprofit organization of investment professionals.

You don't want to outlive your money. “The danger of pulling back too early is opportunity cost. Being overly defensive can have an impact on the overall average return of the investment and potentially cause a shortfall in meeting your objectives,” cautions Brad Bofford, managing partner of Financial Principles.

Larry Springer, a certified financial planner with West Railroad Tax Services believes the time to transfer to more conservative investments is when the need to use the money is more near-term, rather than money to be used over a long period of time.

Have a plan

“You should only shift your approach to investing if your financial goals themselves have shifted. There is no one-size-fits-all formula to determine when or how to modify your investment strategy – but your investment strategy should always reflect your current situation and fit your long-term objectives, needs and wishes,” says Elle Kaplan, CEO and founding partner of Lexion Capital Management.

Create an Investment Policy Statement to stay on track, says Kaplan. This document outlines your objectives, specifies your overall investment strategy and articulates your financial vision. Revisit it annually and after major life events and transitions. No doubt it will help make it clear when it's time to start shifting your investments to safer waters or whether you should stay right where you are.

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Anonymous   |     |   Comment #1
stay safe after age 65
Shorebreak   |     |   Comment #2
It appears once again, "everyone's situation is different" pretty much covers it.

This is one of my favorite tools to see how much I "will be drawing down on the portfolio during retirement."

I'm retired, how long will my savings last?

Anonymous   |     |   Comment #4


A fairly good calculator but I think it would be more reliable if it included income taxes and RMD withdrawals from IRA accounts.
rosie43   |     |   Comment #3
I live on a pension that is much smaller that my SS. I save my SS for any emergencies or extras that might be needed and or more CD's. House and car paid for.  Have small utililty bills, have cable, internet phone and cell. Have always invested in CD's and savings accounts before CD's were available. We were in the market only from May of 1996 to Dec of 99. Could not understand why the market kept going up for no apparent reason, couldn't sleep and thought it had to be momentum buying and I took everything out bought long term CD's and will never get back in. We gift the kids our interest each year and our RMD's when that started. I think working with others money in the bank and  as township treasurer made me too conservative with our money also. 
Anonymous   |     |   Comment #5
I retired two months short of my forty-first birthday, so I'm always intrigued when others lecture on how to do it.  I've been managing retirement (no income from work at all) now for nearly thirty years.

Before I retired I worked like a dog and invested in muni bonds, saving a stratospheric percentage of my take-home.  After retirement it has been mostly CDs. However, I let the bonds mature before reinvesting the money, and many lasted me for years.  Muni bonds were safer investments back in those days than now, and I never lost a dime.

Best counsel I can offer other retirees is this:  Don't lose money.  I know that sounds stupid and obvious, but when you lose money you must place your remaining funds at greater risk in order to recoups your loss.  A downward spiral can ensue, the outcome of which might mean returning to work.  This is a fate worse than death!  :-)

Only other pearl I can offer is that, in all my years of retirement and believe me I've needed to pay attention, I've never seen things worse than they are today.  Were I younger, I'd have zero chance of being able safely to retire at age forty now.  I've had to be prudent and responsible with my own money management over the years.  But I have no defense against a country that is as fiscally irresponsible as the USA has become.  I just hope I'm dead before the inevitable collapse happens.  If I'm not, I probably won't pass muster standing (i.e., lying in a hospital bed) before some death panel, so the situation will be solved that way.  Am I glad I grabbed the good years when I could?  You betcha!!  I would do it again in a heartbeat.
Anonymous   |     |   Comment #7
#5   You must listen to too much Fox News.  I had to limit my guy to how much of it he could watch because he was getting so paranoid.  Instead of the "Russians are Coming" all I heard was "Obama is Coming"!  And all the horrible events that he plans for us.  Now you seem to be posting about only the healthy will be "standing" etc.   Do you realize that he only has ONE TERM left and then some new "whatever" will take over and we get to probably be paranoid about him too? 

You are right that things are about as worse today as I have ever seen them too.  The next generation has no chance of being as prepared as we were able to get unless a miracle happens and we get a Super President who can find people who can turn things around.  You truly are fortunate that you took advantage of the good position you were in and can do well for yourself.  If you have children, I do hope you are putting aside some of your good fortune to help them survive what may be in store for them.   Best to all of us surviving what no one expected in the US.
Shorebreak   |     |   Comment #6
Re: Anonymous - #5, Sunday, August 4, 2013 - 12:27 PM

1. "I retired two months short of my forty-first birthday." Why retire so early? A job is more than simple working to earn a wage. It's part of the life cycle of an individual. Thank goodness I enjoyed my work for the most part and wouldn't have done it differently even if I had the chance.

2. "Before I retired I worked like a dog and invested in muni bonds, saving a stratospheric percentage of my take-home."  So you sacrificed some of the best years of your life for the almighty buck. I did well, without "working like a dog", and still managed to accumulate enough for my later years.

3. " Don't lose money." I've got news for you, don't put all your eggs in one basket. If you do then economic events like we have now can be more devastating then they should be. A well diversified portfolio will tend to weather all storms.

4. "In all my years of retirement and believe me I've needed to pay attention, I've never seen things worse than they are today." I'd like to have a Benjamin for each time I've heard that.

What we have here is just more doom and gloom. If you think it's just going to "hell in a handbasket" why even get up in the morning?
Anonymous   |     |   Comment #8
To all --

My husband used to say we need to retire the first 25 years of our life after marriage so that  both can raise the kids and both work the last years of our life. He said the world got it wrong to quit working after kids were gone. : ) Said raising kids was the most important thing in your life and that should come first. 
Anonymous   |     |   Comment #9
In the 80's Michigan was worse off. We had unemployment in Jan. I think of 84 of over 17%. My husband worked 3 days a week for a very long time. Too much work to collect unemployment. 
Anonymous   |     |   Comment #10
Please allow me to add some perspective. In wartime Europe my great grandfather would boil and chew shoe soles to survive. My grandfather left on a ship "to the Americas" with nothing but a few new socks to sell at the pier, worked hard and built a successful business. My father worked 12-hour days to support all of us. I worked many years running a small company, sold it and retired. While none of us expected the economy (and returns) we are experiencing, I'm not boiling shoe soles...and am grateful for what I have.
rosie43   |     |   Comment #11
My mom said when she was young they had nothing to eat but boiled potatoes for weeks at a time and only were able to boil them when they could fine wood to boil the potatoes. They would get left over bacon grease from the restuarants to put on the potatoes some days if they had some grease left over. We all are so lucky now. 

paoli2   |     |   Comment #12
I ate fried scrambled cow's brains for breakfast instead of eggs and thought it was delicious until I found out years later what it was.  It is amazing what a good mom can find to feed her kids when she doesn't have enough money to buy regular food.  The worse thing I ever ate was horse meat.  It was bitter and terrible! 
Anonymous   |     |   Comment #13
Well, this topic went down the drain in a hurry.  Pitty Party anyone?
Anonymous   |     |   Comment #14
#13  Did we get too off topic for you by sharing what our "real" lives were like?  I do not consider this pitying ourselves.  We are still here today able to look for financial info because we had great parents who saw to it that we survived.  If you think that is a "pity party" I guess you don't want to hear some of the other details of "my" life.   So glad you can be so understanding about how life was for some of us in the real world. 
Shorebreak   |     |   Comment #15
I reiterate...

"What we have here is just more doom and gloom. If you think it's just going to "hell in a handbasket" why even get up in the morning?"
Anonymous   |     |   Comment #16
Why?  Maybe more people should eat cow brains.  Cows are happy campers.  Just because we don't like what has happened to our country, doesn't mean we are "doom and gloom".   We are just facing reality. I certainly don't consider myself a "gloomy" person.  Have a fun evening! :)
Anonymous   |     |   Comment #17
Not sure anyone predicted gloom and doom. Think they were remembering growing up. 
Anonymous   |     |   Comment #18
There's a common thread amongst many of the commenters -- they value thrift and use money and earnings as a tool to take care of life's expenses.  I have lived through the stock market booms and busts over the years and hopefully learned some valuable lessons.  Once upon a time (in the 1990's), my spouse’s employer’s 401K plan offered "Executive Life Insurance Guaranteed Investments Contracts" as the safest investment in the 401K plan.   Needless to say, Executive Life went bust and so-called "safe money" in these GICs was frozen for perhaps 10 to 20 years (in some states 401K plan money in Executive Life GICs had no guarantees) with small pieces of the principal (earning no interest) returned over time.

Basically, there's not much difference in terms of results in what is happening today with money sitting in retirement accounts earning next to nothing,  Taking inflation into account, my dollars are worth less and I'm earning next to nothing, similar to the GICs.  I am trying not to spend principal.  Required minimum distributions will only be used for necessities with any remainder put into a non-retirement account to be used at a later time.  (This go round instead of GICs causing the trouble, it is the Federal Reserve Policy of manipulating interest rates referred to as "monetary policy" Quantitative Easing). 

Recently, I watched Squawk Box on CNBC TV when they were discussing the Jobs Report.  Discussion was about the Fed’s “taper policy” and what would they do now, with the jobs number a disappointment.   So the conversation turns to interest rates and the "taper".

I had not seen Dick Hoey, Chief Economist of Mellon Bank, on television in quite a while but I really relished his comments on this tape as well as those of Rick Santelli of CNBC TV who always seems to hit the nail on the head.

At about 9:20 or so into the tape Rick Santelli  says:

       " I don't think they are going to be able to modify the mouse trap fast enough to catch the mouse that I call the real market."  

Then Mr. Hoey comments at about 9:57 into the tape:

        "...it's about manipulating long-term interest rates.  If I manipulate securities prices, that's called a crime.  If Ben Bernanke manipulates long term Treasury prices, that’s called monetary policy.  What we have now in the bond market is a normalization of long term interest rates from a manipulated price to a free market price, and the detail of which month they actually withdraw that Quantitative Easing  is a detail.   The point is we are going back to market determined long-term interest rates after a period of manipulation by the Federal Reserve.”  

I sure hope Mr. Hoey is right.

 I cannot afford the risk of losing principal .  What I have chosen is to do is "spend less --- much much less since all of 40 to 50 years of planning and saving for retirement have gone down the drain, with Ben Bernanke destroying all those plans with his suppression of or manipulation of interest rates.  Does the Fed ever even consider all the lost interest that has not been reinvested in the economy ? --- No, they have taken the profits from their manipulations and sent them to the Treasury to reduce the deficit.   They rob savers while enticing borrowers to go further into debt.   It would probably please them to have savers "risk all their assets in the stock and bond markets" so they can make big profits for the financial institutions while taking savings from the little guy.  They have not "sold me on their bill of goods!"

I will not risk "retirement principal."  The 40 to 50 years of planning will suffice to meet minimum needs.  I am so angry that no one in Congress gives a hoot about people like those of us who have saved to take care of ourselves in the future.  It seems like most everyone in the financial community thinks it is just fine and dandy to rob savers --- (justifying their call by stating -- at least they have savings).  They only want to help those who have borrowed and gambled and keep them in their addictions and reliant on government to solve their problems).  And let's not, of course, forget about inflating the stock market to a bubble and then anyone who doesn't get out before it bursts loses everything.   Well, fool me once, shame on you, fool me twice, shame on me.  Hopefully, I and my spouse have learned the lesson and won't feel forced into the casino known as the stock market before deposit interest rates recover from their manipulated low bases!


In case anyone is not familiar with Mr. Hoey, here is a link to his latest  economic update for Bank of NY Mellon:



Shorebreak   |     |   Comment #19
Re: Anonymous - #18,Sunday, August 4, 2013 - 8:09 PM

Not a thing you can do about it. No one is listening. Either live with zirp and QE or place a portion of your funds at risk. No alternative.
Anonymous   |     |   Comment #20
#19 is correct. But the Fed cannot control many events that lead to higher long term rates. Two recent examples: investors withdrawing record amounts from bond funds and increasing amounts of money being invested in Europe (vs US bonds). If the Chinese start dumping even a small percentage of their US Treasuries rates would rise dramatically. 
Robert   |     |   Comment #21
This article basically says: Don't be invested in stocks when stocks are bad and don't be invested in bonds when bonds are bad. That's not very helpful because the definition of bad and good are not obvious.  And if by the time you think stocks are "bad", you sell your stocks and then stocks become "good", you might miss out on the best time to buy back into the market.  This is called "Market Timing" and it's nearly impossible, even for professional investment advisors, to do.  Nobody has a crystal ball.
paoli2   |     |   Comment #22
"When to Start"??  I never stopped playing it safe.  Where are we now in Las Vegas?  What a question.