Retirement isn\u2019t the end of your financial plan \u2014 it\u2019s the beginning of a new one. With a steady paycheck no longer coming in, how you invest your money is crucial.<\/p>\n
The challenge? Keeping your money growing while also protecting it so you can reliably draw down income for decades.<\/p>\n
But there\u2019s no one-size-fits-all formula. The best approach depends on your income needs, risk tolerance, time horizon and financial goals.<\/p>\n<\/p>\n
To help you think through how to invest during retirement \u2014 or right before it \u2014 we asked financial advisors<\/a> how they typically manage portfolios for retirees. While their methods differ slightly, they say your portfolio in retirement generally needs to do two things at once: generate predictable income and keep pace with inflation. And to do that, you need a strategy.<\/p>\n Let\u2019s break down some of their key recommendations.<\/p>\n Compare advisors: Bankrate’s list of the best financial advisors<\/a><\/p>\n Before thinking about asset allocation, it\u2019s important to understand how much income you\u2019ll need from your portfolio \u2014 and when.<\/p>\n That includes accounting for:<\/p>\n If you haven\u2019t created a retirement budget yet, start there<\/a>. It\u2019ll help you map out how much income you\u2019ll need and when, so you\u2019re not guessing whether your retirement accounts and Social Security will suffice. Before moving on to asset allocation and withdrawal rates, get clear on your numbers.<\/p>\n Sean Williams, CFP and founder of Cadence Wealth Partners, uses a \u201cbucket strategy\u201d to organize retirement investments by time horizon. It helps segment money based on when you\u2019ll need it.<\/p>\n \u201cAt the heart of this strategy is allocating assets by time horizon to ensure capital is available when needed \u2014 especially in retirement \u2014 without sacrificing long-term growth,\u201d says Williams.<\/p>\n In theory, it breaks down like this:<\/p>\n Bucket 1 (0-3 years) \u2014 Cash or cash equivalents.<\/p>\n<\/li>\n Bucket 2 (4-8 years) \u2014 A mix of 40 percent stocks, 60 percent bonds.<\/p>\n<\/li>\n Bucket 3 (9-14 years) \u2014 A more aggressive 70\/30 stock\/bond mix.<\/p>\n<\/li>\n Bucket 4 (15+ years) \u2014 All stocks.<\/p>\n<\/li>\n<\/ul>\n The proportions depend on how much you need to withdraw annually and what guaranteed income sources you have, such as Social Security, annuities<\/a> or pensions.<\/p>\n Here\u2019s a quick example: A retiree with a $2 million portfolio who needs $100,000 per year to live would start with $300,000 in Bucket 1. But if they\u2019re getting $30,000 a year from Social Security, they only need to withdraw $70,000 a year from investments. That reduces the immediate cash bucket to $210,000 and allows a larger portion of the portfolio to remain invested for long-term growth.<\/p>\n \u201cThis accomplishes two major goals,\u201d Williams explains. \u201cIt gives clients three full years of living expenses covered by the least volatile asset (cash), and eight years covered by stable investments. Just as importantly, it helps keep them invested in equities throughout retirement \u2026 but with a lot of peace of mind.\u201d<\/p>\n In real life, Williams simplifies things further. Instead of four separate accounts, clients typically have one cash reserve and one larger investment account, with the right asset mix to match the buckets.<\/p>\n \u201cEach year, we replenish the cash bucket like a waterfall from the other buckets,\u201d Williams adds.<\/p>\n Get started: Match with an advisor who can help you achieve your financial goals<\/a><\/p>\n Diversification is more than simply owning a bunch of mutual funds. In retirement, it\u2019s about making sure your investments don\u2019t all move the same way when markets get rocky.<\/p>\n Nate Baim, CFP and founding member of Pursuit Planning and Investments, favors low-cost, index-based ETFs<\/a> across a globally diversified portfolio. This includes U.S. and international stocks (including emerging markets), as well as short- to intermediate-term bonds<\/a> and global bond exposure.<\/p>\n He also includes real estate investment trusts (REITs<\/a>), which offer the potential for both income and growth.<\/p>\n Baim says he frequently sees retirees too heavily invested in U.S. large-cap tech stocks<\/a>. \u2014 which can feel \u201csafe\u201d due to their past performance, but which actually ramp up risk when markets turn south.<\/p>\n \u201cThat\u2019s a recipe for volatility right when stability matters most,\u201d Baim says.<\/p>\n For retirees, the goal isn\u2019t to avoid risk altogether. It\u2019s to own a broad mix of assets that perform differently in different environments \u2014 so you\u2019re not overexposed in a downturn.<\/p>\n In retirement, even modest inflation can erode your lifestyle \u2014 especially over 20 or 30 years.<\/p>\n \u201cInflation is a silent portfolio killer,\u201d warns Baim.<\/p>\n To guard against it, Baim recommends including Treasury Inflation-Protected Securities (TIPS<\/a>) in a retiree\u2019s bond allocation. TIPS adjust with inflation and can help preserve the purchasing power of your fixed-income holdings. While not perfect inflation hedges, TIPS add another layer of diversification to a retiree\u2019s portfolio.<\/p>\n Like Williams, Baim recommends holding at least one to two years\u2019 worth of expenses in cash or ultra conservative instruments<\/a> to buffer against volatility.<\/p>\n But Baim cautions against retirees sitting on too much cash. While it feels safe, uninvested money loses value over time if it\u2019s not at least keeping pace with inflation.<\/p>\n \u201cWe\u2019re planning not just for the next market cycle, but for the next few decades,\u201d says Baim.<\/p>\n Baim actually encourages increasing risk later in retirement once a client\u2019s base income needs are secure. He believes the old standards \u2014 like the 60\/40 portfolio<\/a> \u2014 often fall short for modern retirees.<\/p>\n It\u2019s an idea that flips conventional wisdom on its head. Traditional financial advice tends to favor moving away from risky assets like stocks and reallocating to safer assets like bonds in retirement.<\/p>\n \u201cWith people living longer and having more active retirements, we often plan for 30 or more years of income,\u201d says Baim. \u201cThat changes everything.\u201d<\/p>\n Most retirement strategies focus on what to invest in \u2014 but where those investments live matters, too.<\/p>\n This is where tax optimization comes in. It refers to holding different types of assets in the most tax-efficient accounts: taxable, tax-deferred (like traditional IRAs<\/a> and 401(k)s) or tax-free (like Roth IRAs<\/a>).<\/p>\n \u201cWhere the capital is held can matter just as much as what it\u2019s invested in.\u201d<\/p>\n<\/blockquote>\n For example, income from bonds or REITs is generally better off in tax-deferred accounts where you don\u2019t pay taxes until you withdraw. Meanwhile, growth stocks can shine in a Roth IRA, since qualified withdrawals are tax-free \u2014 a big plus if you want to avoid capital gains or leave assets to heirs.<\/p>\n When it comes to taking withdrawals, smart sequencing can reduce taxes and stretch your money further.<\/p>\n That could look like:<\/p>\n Tapping taxable brokerage accounts first to give tax-advantaged accounts more time to grow.<\/p>\n<\/li>\n Then moving to traditional IRAs and 401(k)s.<\/p>\n<\/li>\n Saving Roth accounts for later years or legacy goals.<\/p>\n<\/li>\n<\/ul>\n Regardless of which account you\u2019re pulling from, Baim offers a final piece of advice: \u201cSpend more out of a portfolio in good years and withdraw less in volatile years,\u201d he says.<\/p>\n By the time you hit retirement, the goal is no longer accumulation. Now it\u2019s about making your money work for you with steady income, protection from inflation, smart tax moves<\/a> and enough growth to cover what\u2019s ahead. Working with a financial advisor can help you create a plan that\u2019s built specifically for you \u2014 one that\u2019s built to last.<\/p>\n\n
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