Valdosta Daily Times


July 5, 2014

Many factors can impact retirement-savings risk decisions

- — A basic tenet of retirement planning instructs investors to tilt their sails to more conservative shores as their retirement beachhead 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.

More recently, some experts have recommended goosing up the stock part by subtracting the age from 110.

But essentially the idea remains the same — as you age, your investments get more conservative. Target-date funds and many managed retirement portfolios all follow suit.

At a recent Morningstar investment conference, however, even 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 Pinnacle Advisory Group Inc.

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.

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