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As we enter retirement I’ve been wondering if we should change our investing choices.
Our situation is that we will have enough income from two SS accounts and three pensions to cover our expenses. None of which have cola’s attached.
Do the majority of you HD readers in retirement invest in dividend paying stocks/ETFs//funds for additional income? Or do you stay invested in the overall stock market to accumulate more and then sell it to proceed income when needed?
As always I appreciate the diverse answers our questions receive
As usual, the answer to your question depends on a lot unknowns: How long will you both live? What will you future health care needs be? Do you have children that you would like to leave money to? And so on.
The simplest answer I can offer is this: If you are just entering retirement, there is a high probability that one of you may live to age 90 or more. And, if you have an IRA, or other similar retirement vehicle, it is possible that upon the death of the last of you, there could be money left that would be distributed over an additional 10 year period.
In other words, you have a potential 20-30 year investment time horizon to plan for, which will be affected both by how much you spend and the effects of inflation. Spending you have some control over, but not inflation which on average runs 2-3% per year. As a result, in order to fund your spending and overcome the effects of inflation, your investment portfolio should include some exposure to equities. How much depends on your risk tolerance, but a lot of other comments in response to your question will give you some idea in this regard.
I have been retired for 14 years, 65 to 79. I started out thinking going from a 60/40 to 50/50 split. After reading HD for many years, I have now come to a much different conclusion. At the beginning my SS and small pension covered expenses. I read a lot about Buffett and became a stockholder and went to a Stockholders meeting, kind of like going to a fair, lots of happy people. Then one day Buffett said if he died, he would have his wife invest 90% in the S&P and 10% in treasuries. At the time I had 40 stocks inducing a few mutual funds. So I decided to go with his idea, 85% S&P and 15% Cash, my wife’s influence. The cash is for the years the stock market is negative and would not want to sell stocks. I also decided to purchase the S&P in EFT’s. I am not there yet but getting close, 11 stocks, the rest mostly S&P and QQQ. The reason I am 85% in stocks is to insure to keep up with inflation in case I live to be 100! Currently live in Independent Living and use half of my RMD to pay taxes and the additional expenses SS and small pension do not cover. This is working for me.
I think it is worth noting that 10% of Buffett’s current estimated worth is $14 billion, which means that his heirs will live very comfortably no matter what happens to the market. I wouldn’t assume that he would give the same advice to someone with a portfolio like yours.
”The reason I am 85% in stocks is to insure to keep up with inflation in case I live to be 100!”
That is fine if you choose to use for a portfolio if you want, but that high of an equity position is not necessary just to keep pace with expected inflation.
But it is not necessary for most retirees. In a Morningstar report the 2023 retirement income research the highest safe (defined as assumes a 90% probability of having funds remaining at the end of a 30-year retirement period)withdrawal rates corresponded with portfolios with just 20% to 40% in equities.