YOU ARE HERE: LAT HomeCollections


Split portfolio between stocks, cash to reduce risk

July 01, 2007|From Tribune Newspapers

I retired 10 years ago at 80. At that time I had assets of $350,000. Now I am down to $157,771 in my portfolio. In it is $6,560 in cash; $39,773 in stocks and $111,438 in mutual funds. Is it wise to put this in CDs and money market accounts earning about 5% before the market starts dropping?

You indicated your monthly income of about $4,800 is split roughly 50-50 between Social Security and portfolio withdrawals. Without knowing your wishes about leaving an inheritance, or what types of mutual funds you hold, a financial planner with expertise in late-stage retirement planning offered some thoughts.

If you move the $157,771 into money market funds and certificates of deposit, it will last about six years at current market rates, assuming you keep withdrawing at the same rate, said Randall Cooper, a financial planner with Life Transition Planning in Tampa.

"If he leaves it all invested, he risks a shorter lifetime for the money, or possibly extending it out a couple of years," Cooper said. That's the gamble with stocks. One compromise would be to put half of the portfolio in diversified stocks (such as well-balanced mutual funds) and the other half in CDs and money markets, at least cutting your risk in half, he said.


Assessing benefits the first year

I plan on retiring at midyear in 2008 and I will have earned more than the Social Security wage limit. Does the limit apply for 2008, or in 2009, when I receive a full year of Social Security and I am no longer working? I will be 63 (my full benefit date is age 66).

The income limit applies as soon as you retire, but Social Security gives a break to people in the first year of retirement. In the year you retire, your earnings are evaluated on a monthly basis to determine if you are eligible for your maximum benefit at 63.

Currently, you can earn $12,960 in wage income annually before it begins to reduce your benefits. But if you work the first six months of the year, then retire, the department applies a monthly test to your wages. As long as you earn less than $1,080 per month after you retire, you will receive the maximum benefit for your age, said Social Security spokeswoman Joan Zimmerly. These figures are for 2007, so keep an eye on this website for updated limits:


Aggressive plan fails 10-year test

I have about $170,000 in IRA money coming due this November from a five-year CD. I know this is not the way to go, and with about nine years until retirement and no immediate need at that point for the money, I thought about putting it into several T. Rowe Price mutual funds: Capital Appreciation Fund, $80,000; Equity Income Fund, $25,000; Extended Equity Market Index Fund, $25,000; and International Growth & Income Fund, $40,000. Does this strategy and selection look right for decent growth over a period of 10 years?

You have described moving from federally insured certificates of deposit to an all-stock portfolio with about 25% invested in stocks of foreign companies, according to Morningstar Inc.'s X-Ray portfolio analyzer tool.

That's quite a shift, and may or may not make sense for your investment horizon, depending on your other holdings. Will you have a guaranteed pension? A generous 401(k) balance? Other investments? If so, an aggressive portfolio could be justified.

But how much risk do you really need to take? T. Rowe Price's senior financial planner, Christine Fahlund, said the firm's target-date retirement fund for retirements in 2015 had a 70% stock allocation, with 24% in bonds and 6% in very short-term investments.

Fahlund ran your suggested investments through a Monte Carlo computer simulation analysis. Over a 10-year period, the more aggressive portfolio didn't boost returns enough to justify the higher risks, she said.

Los Angeles Times Articles