retirement portfolio

Creating a Portfolio for Retirement

As we approach retirement it’s critical that we ensure our portfolios will provide a reliable and steady stream of income as we transition from the workforce. A few years ago many retirees learned this lesson the hard way when the financial markets all but collapsed.

If you are approaching retirement it's a good idea to take a few minutes and analyze your portfolio’s holdings. At this point in your life you should be seeking to reduce the volatility of your asset accounts. This will help protect against large losses that could severely impact your quality of life during retirement.

Retirement Portfolio Allocation

Many individual investors have a large percentage of their portfolios allocated to stocks. While this is not optimal, I understand the attraction to stocks as they have more growth potential than other, less risky assets like Bonds and Certificates of Deposits. However, having a large allocation to stocks during a bear market can wreak havoc on a retiree’s lifestyle, thus it’s imperative that we allocate a higher percentage of our portfolios to fixed-income investments.

Fixed-income investments include assets such as Treasury Notes and Bills, Bonds and Certificates of Deposit. While these assets do not promise high returns their safety, especially to retired investors, is priceless.

The Right Mix of Retirement Assets

Finding the perfect portfolio is a fools errand. This is due to the fact that there are too many lifestyle variables to consider. However, there are portfolio allocations that are better than others and this is the key to successful investing during retirement.

With that said, in a general sense a good retirement portfolio includes no more than 50% of its allocation to stocks. The remaining portion of the portfolio should be dedicated to fixed-income investments. However I would normally suggest a much higher allocation of 75%-85% of a portfolio to fixed-income assets. A retirement portfolio with these allocations would provide financial security and a little hedge against inflation. Both of these factors are an important part of retirement planning.

A Model Retirement Portfolio

As an investor myself, I am partial to ETFs and Mutual Funds for my retirement accounts. This is due to the ease of allocation and portfolio management. In addition these funds provide easy diversification. So with that in mind you can use the following model retirement portfolio as a start when determining your portfolio’s allocation.

  • 10% - Cash/ Savings Account
  • 25% - TIPS Bond
  • 20% - Long-term Government Bond
  • 20% - Short-term Government Bond
  • 15% - S&P 500
  • 10% - International Stock

To ensure that you protect your retirement assets and income stream reallocate your holdings to less volatile assets. Fixed-income might not offer high returns, however their safety will help protect your lifestyle during retirement.