For anyone approaching their 60s, upcoming retirement becomes all too real. Extended beach vacations, travel, quality time with grandkids, all of it is within reach.
However, you might also have a lot of questions, including:
• How do I know if I have enough money to retire?
• What’s the smartest approach to generate an income from my portfolio?
• How do I deal with inflation, given rising expenses and falling asset prices?
Have a Retirement Plan in Place
Morningstar’s director of personal finance, Christine Benz says that when it comes to investing in your 60s, the key thing to start with is to look at how much you have been able to save and how much the portfolio might grow before actual retirement. It is recommended that individuals do what’s called an investment policy statement, which considers details such as the assets available in your portfolio, the level of risk, the rate of return that you’re trying to achieve, the management of your portfolio, and the cost, among other parameters.
In all cases, appropriate asset allocation is key. “One thing that’s on the top of my mind right now, is the strong performance in the equity market over a decade,” says Benz, who points out that many people in their 60s, especially if they’ve been taking a hands-off approach in their portfolios, have a lot of stock exposure. “I would say at the portfolio level, that is the key thing to take a look at, and whether you might consider adjusting that equity piece downward a little bit,” she says. Benz is a big believer in using a “bucket” approach to visualize what would be an appropriate asset mix, and that varies according to each individual.
To help with some of this, the team at Morningstar Investment Management has some tips.
7 Actions for Investors in their 60s to Consider
- Focus on Desired Outcomes: As investors approach or enter retirement, outcomes become far more important than relative gains. Tie outcomes to their goals, with a specific focus on funding your retirement cash flow needs.
- Reframe Budgeting: Retirees often struggle with their budgeting as their ongoing needs change. Understand the retirement smile (spending starts high, then falls, then increases again) and how to address it.
- Focus on Value Drivers: The 60s is a prime period for broader financial planning. All too often, we think about investing first, but the structures are important, including final contributions.
- Avoid Myopia: Investors in retirement can become too defensive and short-term orientated. A portfolio ‘bucketing’ approach combining portfolios with different risk profiles can you stay focused on the long term.
- Behavioural Coaching on Sequencing Risk: Research shows that behavioural coaching can add meaningful value. Or conversely, bad behaviour is destructive. Understand sequencing risk, while keeping in mind the principles of good investing and associated habits.
- Consider Different Portfolio Combinations: Meeting goals is an individual experience and tracking the TSX Composite, or S&P500 is not for everyone. Embrace portfolio combinations you feel positive about, but don’t overcomplicate your investments.
- Prepare for a Post-Retirement Crash: Over your retirement, you’re likely to experience at least one market crash. Your response to these events will determine your ability to preserve capital. The better you are prepared, the less likely you are to make mistakes.
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