Years ago, retirees typically traded stocks for bonds after retiring. Pensions were common, bond interest rates were higher, and people lived shorter lives, so it made sense. But times have changed, and retirees can't afford to be overly cautious now. "You're retired," says Suze Orman, "your portfolio isn't." It still needs to grow.
Don't Miss:
The average American couple has saved this much money for retirement — How do you compare?
Can you guess how many retire with a $5,000,000 nest egg? – How does it compare to the average?
Market crashes scare many retirees. Orman advises, "Don't withdraw money from your retirement account now." This depletes your savings faster and prevents you from recovering when the market rebounds.
Instead, rely on guaranteed income for living expenses. Social Security, pensions, and income annuities can provide steady cash flow.
For example, if you need $50,000 annually for basic living expenses and one spouse brings in $25,000 from Social Security (it's crucial to only count the higher earner's benefit, Orman notes, as this is your eventual income), and you have a $10,000 pension, you still have a $15,000 gap to fill with cash reserves.
Trending: If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends would you invest in it?
She recommends having a cash reserve on hand to cover five years of expenses. While three years might be sufficient in stable economic conditions, today’s market warrants a five-year emergency fund in liquid assets. One would need $75,000 as a cash cushion in this hypothetical scenario.
You can maintain your stock investments and let them recover with your essential costs covered. Once the market rebounds, you can replenish your cash by selling shares.
According to Money.com, Orman suggests a straightforward approach to stock allocation: subtract your age from 110. So, if you're 65, she suggests investing 45% of your portfolio in stocks.
See Also: A billion-dollar investment strategy with minimums as low as $10 — you can become part of the next big real estate boom today.
A study by Wade Pfau and Michael Kitces found that retirees might benefit from a “rising equity glide path” in retirement. This involves starting with a lower stock allocation (around 30%) and gradually increasing it to 50-70% over time, which can help mitigate the sequence of returns risk.
T. Rowe Price recommends that retirees in their 60s maintain 45-65% in stocks, 30-50% in bonds, and 0-15% in short-term investments. Similar to Orman, they suggest gradually decreasing stock allocation as you age.
The American Association of Individual Investors (AAII) asset allocation survey in June 2024 showed that the average individual investor held:
70.5% in stocks
14.5% in bonds
15% in cash
Whether you follow Suze Orman's advice or decide on a different path, staying proactive about your retirement planning is important. Talking to a financial advisor can help you create the right plan and give you peace of mind as you enjoy your retirement.
Read Next:
Can you guess how many Americans successfully retire with $1,000,000 saved? The percentage may shock you.
This billion-dollar fund has invested in the next big real estate boom, here's how you can join for $10.
"ACTIVE INVESTORS' SECRET WEAPON" Supercharge Your Stock Market Game with the #1 "news & everything else" trading tool: Benzinga Pro - Click here to start Your 14-Day Trial Now!
Get the latest stock analysis from Benzinga?
This article Suze Orman Says 'You're Retired. Your Portfolio Isn't.' – Here's Her Advice For Growing Your Nest Egg In Retirement originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.