Should I change my Asset Allocation? I’m close to retirement!

By Morgia Wealth Management on July 10, 2024

Close to retirement and wondering if your asset allocation needs to change?  Concerned about the recent gains the market and wondering if at retirement you need to totally change your outlook to something conservative?

This is a question that we get all the time from clients.  We work with many clients who are approaching retirement age after a long career and years of disciplined investing.  One of their biggest questions is about their asset allocation.  They want to know if they should change their asset allocation to something more conservative or an allocation with more cash.

First, let’s review what is an asset allocation? 

Asset Allocation is how you divide your invested money across stocks, bonds, cash, and precious metals like gold or silver.  Your asset allocation is a measure of your own personal appetite for volatility because each of these assets (stocks, bonds and cash) have different risks and potential returns.

They will behave differently over time and your specific allocation depends on how long you plan to keep your money invested, your need for cash or income, your goals and your overall tolerance for volatility.

Now, if you are retiring at 65 you might ask maybe I should change my allocation from 60% stock and 40% bonds and cash?  After all, you are older and retired.  The answer isn’t as simple as reaching a specific age and a specific life stage.  Here are the questions that we at Morgia Wealth Management like to discuss with you to help think about asset allocation and retirement:

1. What is your time horizon for using the money?  Are you drawing on it as soon as you retire or are you not planning on touching it for 10 or so years or even planning on passing it along to your children?  Talking with us can help you look at all your accounts and your time horizon to build a plan on what your asset allocation should look like.  Each one of those scenarios of needing it now, possibly in 10 – 15 years or planning to pass it to your children are important parts of a good allocation discussion.
2. People are living longer and longer.  If you don’t have a family history of an early death, you may need your assets to support you for 20 or 30 years of retirement.  Whether your assets can support you over that long period of time depends on how much you have saved in your investments, how much income you will need, when you need that income and how you are invested.   In an inflationary world where cash loses a bit of purchasing power every single year, your assets may need to work longer by staying invested.
3. How much income do you need?  Your assets may be able to easily cover your expenses with money left over.  Your assets may also need to grow over time to sustain your income needs.  It’s important to talk with your financial advisor about your specific needs to help you reach the right asset allocation.

As you reach retirement, asset allocation is not a simple decision.  It takes an in-depth conversation with a wealth advisor to help you get a point where your allocation will help you meet your goals and needs.  For more information, read this article by Charles Schwab or this article that goes into more depth from T. Rowe Price.

Please let us know if your circumstances or time horizon has changed so we can work with you on your asset allocation.