‘Is my financial planner crazy?’ We’re 55 and 60, five years from retirement and were told we should invest more aggressively

I recently saw a MarketWatch article that recommended that one’s retirement portfolio should be 100 minus their age in stocks or perhaps even more conservative. I am 55 and my husband is 60 and we plan to retire in 5 years, which would put us at say 40% in stock.  My current financial adviser who is a CFP and who we recently hired, suggested this is way too conservative and suggested a portfolio 75% in stocks, especially given the current bond market. In fact, two other financial advisers we interviewed also suggested more aggressive portfolios. I don’t think there is anything special about our situation. We have saved $1.4 million in IRAs and own two properties (one of which will be paid off by the time we retire.) Who is right? How do we make a decision with such diverse advice?

Thanks,

Confused in Virginia

See: I’m 64, make $1,500 a month driving Uber and get almost $5,000 a month in pensions and Social Security — should I pay off my mortgage before I retire?

Dear Confused in Virginia, 

I’ll start off by saying no, your financial planner is not crazy. 

There are thousands of ways to create a retirement portfolio, and many rules of thumb that are just that – rules of thumb. The strategy you saw in an article about subtracting your age from 100 is one of them. If you went with that, then yes, your portfolio would be somewhere between 40% and 45% in stocks and, quite honestly, that does sound a bit low. 

Here’s why: Aside from the current bond market, like your planner mentioned, you’re actually quite young for retirement. And retirement these days isn’t as it was decades ago, when you’d give in your papers at 65 and live out your last few years on the beach. Today, retirees can expect to live 20, 30 – maybe even more – years in retirement, and they’ll need every dollar they can get to stretch through that remaining lifetime. If your portfolios aren’t somewhat aggressive, you risk the chance of running out of that money sooner than you’d like. A portfolio too conservative is only really protecting your assets from dwindling too far down. It’s not getting you much in returns. 

Of course, being too aggressive near retirement doesn’t always feel right – like in a volatile market. You don’t want to lose too much of your balance, especially if you’re going to start drawing down from it. In that scenario, known as the sequence of return risk, you’re taking from a portfolio when it’s down, and lowering your future potential returns. It’s best to have money set aside that you’ll tap into when the markets are acting up so your portfolio can be left alone to grow. 

The truth is, what advisers suggest and what works for you may not always align. That’s OK. What you need to do is find the strategy that works for you, and a qualified CFP will do that. Be clear with your concerns and fears, hopes and goals, when talking to a professional. 

Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey 

Some advisers, possibly even yours, may suggest the bucket method, which is where your assets are pooled into separate categories by time. For example, you’d have one bucket that’s very short-term, and that would be very conservatively invested money (this could and should still be separate from an emergency fund, which should be easily accessible in case something unexpected occurs). Then you’d have the mid-term investment pool (maybe that could be something like the 100 minus your age strategy). And then you’d have the long-term, say 15-plus years out, and that would be aggressive. The aggressive bucket will be working hard to get that money growing for you, but if there’s a dip in the markets and the balance drops a bit, you won’t feel it. 

These strategies can’t just be focused on the returns. They have to make sense for you and the way you feel about your money. If the idea of an aggressive, or even somewhat aggressive, portfolio stresses you out and all you can do is think about that balance going up and down, then you need to talk to your planner about that. But just know that even mentioning aggressive portfolios at your point in life is far from crazy. 

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