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Creating an Investment Portfolio for a Successful Retirement

An investment portfolio will need to be adjusted as you transition from working to retirement. This is because in retirement, you will use your portfolio as a source of income.  When you realize that your portfolio becomes one of your major sources of income, you may probably feel a little more uneasiness when the market fluctuates. You have to gauge what your risk tolerance is and make sure that the portfolio will stay on track for the duration of your retirement.

Considering Ingredients

Different ingredients make up an investment portfolio and adjustments may need to be made considering all of the ingredients. Aside from your risk tolerance, life expectancy is also something that you may want to consider when it comes to making changes to your portfolio. Each person is different but in essence, you want to have a total return strategy that’s high enough to maintain your lifestyle throughout retirement.

Life expectancy can be a sensitive issue, but when it comes to retirement, we can always hope that we live longer than expected. In turn, our financial strategy also sticks with us as we age. It’s better to plan for the long-term even if we might not know all of the details the future holds.

Expenses

One of the most challenging aspects in creating an investment portfolio is determining expenses. We need to create a strategy that meets our expenses but a lot of people don’t have a good idea of what they’re going to spend. It can be figured out through some analysis but realize that you’re not going to spend the same amount of money you did when you were working. A lot of the time, people will spend more money during the first 20 years of retirement because they want to take advantage of the free time and money they have.

Your investment portfolio starts with the expenses in mind. You can consider things such as pension and Social Security, then you can have a monthly strategy where a set amount of money transfer to your bank account similar to a salary. It will help you stay on track and stay comfortable.

Consistency

When you have a consistent strategy, there are no surprises. You may spend less and save more, then later on you may need extra money for other things. Fixed income streams will also help in this regard as they add to your income. Social Security and pension will add money to help meet your expenses. Having your income sourced from different streams can really help you maintain consistency throughout retirement.

One strategy to consider is a “bucket” strategy that divides your money into short term (1-3 years), midterm (3-10 years), and long term (more than 10 years) which will help you maintain your income throughout retirement. Each of these buckets will have money set up in different kinds of investments. When you have a strategy such as this, you won’t even have to worry about a correction event like in 2008 because you know that you have money growing for the long term and you’ll still maintain your lifestyle today.

Don’t Panic

People look at the news and they become worried about their finances. The stock market will go up and it will go down. An optimal strategy means that your money will always be replenished no matter the time frame. So you don’t really need to concern yourself with all of the news.

We can’t truly say what will happen in the future as the current administration might change laws here and there. However, we can’t approach things by guessing either. When we have solid facts and history backing up our moves then we don’t need to worry so much. We just need to manage our emotions and realize that at times the markets may go down but it will also come back up.

A Solid Financial Strategy

When you have a strategy in place that takes care of you for all phases of retirement, it eliminates the need to make unnecessary decisions based out of emotions. You’ll avoid making bad decisions when the markets go down because you know you have money for every stage of retirement, then you’ll start to have a happier and successful retirement.

 

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Larry Heller, Not Your Average Advisor.

 

A CFP® (Certified Financial Planner) and a former CPA.

Has helped solve complex financial planning for 20+ yrs.

Member of Wealth Management Think Tank.

A financial advisor think tank that meets monthly to discuss investment strategies and planning opportunities.

Larry is approached regularly by the respected journals.

“Journal of Financial Planning”, and “The Wall Street Journal”.