3 Genius Things People Do With Their Investment Portfolios After Retiring

07/05/2024

Senior Couple thinking about their Debts.

You’ve finally made it to retirement — after years of working, saving, investing and handling all of life’s curveballs, it’s time to kick back and relax. As you look to the years ahead, though, you may be wondering what to do with your investment portfolio. Should you own less stock — or none at all? What is the right level of risk to help ensure that your savings will be able to last as long as you need?

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“There is always a lot of advice for what to do before retirement – yet there is a lack of conversation regarding what to do after retirement,” said Melissa Murphy Pavone, certified financial planner (CFP) and director – investments with Oppenheimer & Co. “We are so focused on the accumulation phase of retirement. Clients have spent their whole lives in the accumulation phase, working and saving. And then comes retirement, and the decumulation phase. No more working, oftentimes less income, and spending down of assets. This is supposed to be exciting, but often a cause of anxiety and worry.”

GOBankingRates spoke to retirement experts to find the top three moves that the smartest investors should be making with their portfolios after they retire.

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Simplify and Consolidate

Chris Urban, CFP and founder of Discovery Wealth Planning, said that the single most important move is reducing unnecessary complexity.

“This includes consolidating relationships with financial companies, reducing the number of investment and retirement accounts you have and simplifying the makeup of each of these accounts,” Urban said.

Over the course of your working life, you may have accumulated multiple 401(k) and individual retirement accounts as well as one or more taxable investment accounts like a standard brokerage account, not to mention any checking, savings or money market accounts.

Urban noted that the specifics of how much and what you should consolidate will depend on your specific financial situation. For example, if you are between the ages of 55 and 59 1/2, you may want to keep at least some assets in an old 401(k) plan in order to take advantage of the rule of 55 and avoid a 10% early withdrawal penalty. If you’re already 60 or older, though, it could make more sense to roll everything over to a single IRA. This will reduce the number of accounts you have and make it much simpler to work with a professional advisor if you would like someone else to manage your portfolio.

“It is very important to consider your own personal circumstances as you evaluate your options and make the decision that is in your best interest. Regardless… simpler is better,” Urban said.

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Build in Maximum Flexibility and Protection

The whole point of retirement is being able to enjoy it, so another genius move is setting up your portfolio so that you are flexible enough and safe enough to respond to the unexpected without putting your retirement at risk.

“A robust emergency fund of 12 to 24 months of expenses [will] enable retirees to have available cash on hand for unforeseen expenses and risk-free funds to tap if the market performs poorly,” said Stephen Kates, CFP and principal financial analyst at Annuity.org.

Another way to build in flexibility is to create a bond or CD ladder that is tailored to your anticipated cash flow needs. A ladder is a strategy that invests in securities like bonds or CDs that offer a predictable income stream over different maturities.

“By doing so, you can help shield yourself from the fluctuations of the equity markets when you need to withdraw from your investments. For instance, if there’s a downturn of 20% in the equity markets, you are less likely to be forced to sell at a loss to cover your daily expenses. Conversely, if the equity markets perform well, you retain the flexibility to draw from that portion of your portfolio instead,” said Matthew Schaller, CFA, CFP and advisor at Moneta Group.

Lessen Your Risk, but Not Too Much

Everyone knows that as you get older your portfolio needs to be less risky. Just how much less risky it should be is less clear — for example, many investors will completely eliminate stocks from their portfolios. A genius investor understands that carrying some risk into retirement will actually work out to your benefit.

“Ironically, one of the biggest problems of retirees and near retirees is assuming too little risk and settling for lower long-term returns,” said Robert Johnson, PhD, CFA, and professor of finance at Creighton University’s Heider College of Business. “It is true that near retirement investors should derisk their portfolios to some extent (that is, moving from stocks to lower risk bonds). When a person is within a few years of retirement, say five years, they should begin to reduce their risk exposure in retirement accounts. A large downturn in the market immediately preceding retirement can have devastating effects on an individual’s standard of living in retirement,” Johnson said.

However, swinging the pendulum too hard in the direction of derisking can actually create a new risk — running out of money in retirement.

“Many investors fail to recognize that their time frame is much longer than they may believe. If one retires at 65, one may have a lifespan of an additional 30 years. Holding too conservative a portfolio can lead people to run an increased risk of outliving their assets,” Johnson said.