Make us your home page
Instagram

Many factors can affect retirement-savings risk decisions

A basic tenet of retirement planning instructs investors to become more conservative as retirement nears.

One of the oldest personal finance rules of thumb held that one should subtract his or her age from 100, and that number would represent the percentage of stocks to hold in a portfolio, with the rest held in bonds.

At a recent Morningstar investment conference, that basic principle was up for grabs.

Today's financial markets may be pointing investors toward starting retirement with a more conservative nest egg and allowing it to take on more stocks over time, said Michael Kitces, director of planning research for the Pinnacle Advisory Group.

To be sure, Kitces and other experts noted, there are lots of caveats to this idea. It doesn't work for ultraconservative investors or those who want to leave behind a big inheritance, for example.

For the great majority of situations, noted David Blanchett, Morningstar's head of retirement research, the traditional approach of growing more conservative over time works.

Kitces' point is that many retiring Americans happen to be precisely in the type of situation calling for a different idea.

"A rising-equity glide path doesn't work great except in one scenario: You've got a moderately aggressive portfolio at retirement in a low-return environment where you're going to be spending at a fairly high withdrawal rate, and you're just concerned about getting to the end without running out of money and not leaving a large bequest," Kitces said.

With stock valuations relatively high now, this suggests starting retirement with a low allocation to stocks — as low as 30 percent — and taking withdrawals from the fixed-income part of the portfolio so that, in effect, you'll take on a higher equity allocation over time, he said.

It also suggests sticking with a fairly low initial withdrawal rate in retirement of around 4 percent, Kitces said, but not becoming completely locked into that number plus inflation for the long haul. Like markets, he said, withdrawal rates need to be dynamic to avoid undesirable ends of underspending or overspending.

"On average, a decreasing (amount of stocks in a portfolio) is better, but there's no one best solution," Blanchett said.

In fact, for workers with more time to go before retiring, Blanchett also suggested tamping down on stocks if other areas of your life, namely your career or your real estate holdings, look risky.

His research is still imprecise, but it generally tries to customize a risk-tolerance measurement. Work in an industry prone to layoffs? Live in a volatile housing market like Las Vegas? Ratchet down on the stock part of your investments, the theory goes, though Blanchett acknowledges these are general guidelines.

Particularly for younger savers with a long career ahead of them, factoring some measure reflecting the volatility associated with their careers into their stock-bond allocation can help smooth the savings ride, he said.

Many factors can affect retirement-savings risk decisions 07/13/14 [Last modified: Sunday, July 13, 2014 6:46pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Tribune News Service.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. 'Road to Nowhere' is back: Next phase of Suncoast Parkway coming

    Roads

    Despite intense public opposition and dubious traffic projections, the Florida Department of Transportation has announced that construction of the toll road known as "Suncoast 2" is expected to start in early 2018.

    The Suncoast Parkway ends at U.S. 98 just south of Citrus County. For years residents have opposed extending the toll road, a project dubbed the "Suncoast 2" into Citrus County. But state officials recently announced that the Suncoast 2 should start construction in early 2018. [Stephen J. Coddington  |  TIMES]
  2. A sports rout on Wall Street

    Retail

    NEW YORK — Sporting goods retailers can't shake their losing streak.

  3. Grocery chain Aldi hosting hiring event in Brandon Aug. 24

    Retail

    BRANDON — German grocery chain Aldi is holding a hiring event for its Brandon store Aug. 24. It is looking to fill store associate, shift manager and manager trainee positions.

  4. Lightning owner Jeff Vinik backs film company pursuing global blockbusters

    Corporate

    TAMPA — Jeff Vinik's latest investment might be coming to a theater near you.

    Jeff Vinik, Tampa Bay Lightning owner, invested in a new movie company looking to appeal to a global audience. | [Times file photo]
  5. Trigaux: Look to new Inc. 5000 rankings for Tampa Bay's future heavyweights

    Business

    There's a whole lotta fast-growing private companies here in Tampa Bay. Odds are good you have not heard of most of them.

    Yet.

    Kyle Taylor, CEO and founder of The Penny Hoarder, fills a glass for his employees this past Wednesday as the young St. Petersburg personal advice business celebrates its landing at No. 25 on the 2017 Inc. 5000 list of the fastest growing private companies in the country. Taylor, still in his 20s, wins kudos from executive editor Alexis Grant for keeping the firm's culture innovative. The business ranked No. 32 last year. [DIRK SHADD   |   Times]