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What Will be the Equity Percentage when I retire?

My brother sent me an interesting link from the NY Times. An Adage Adjustment for Investors at Retirement about whether today’s new concept of Seniors holding high equity stakes in their retirement savings really makes any sense at all.

The scariest statement is at the beginning of the article:

Traditionally, retirees have been told to keep a significant slice” about 50 to 60 percent of their portfolio in these risky assets

The question is, “What investment professional is telling seniors this is a good idea?”.

One of the cornerstones of any plan was less reliance on equities after the age of fifty. You should have enough savings to use fewer growth-oriented and/or risky investments.

Now given that retirement plans have changed significantly from when I was 25 (i.e. I managed to stumble into a nice pension plan, which means maybe I can be a little more reckless with my RRSP money) I might be one of those seniors who might hold a higher percentage of equities in my investments in my senior years, but if you are relying on this money as your “nest egg”, why would you go for a very risky mix?

The bottom line for most folks is when do you stop trying to build wealth? Can you stay well ahead of inflation, reduce debts and have more than you had yesterday? When should you be satisfied with what you have? I’d like to hear your opinion on that.

Feel Free to Comment

  1. Equities are inherently risky.

    However, with so many people approaching retirement age without anywhere near enough money to live the lifestyle they anticipated, they’re having to take more risks than is prudent.

    Personally, I want to build my net worth in cash flow producing assets: rental real estate, dividend stocks, etc. Hopefully, enough of them will survive long enough to fund my retirement, plus by focusing on cash flow vs growth, you know exactly when you can retire, because once you hit that point, you’re already there. No asset reallocation required.

  2. Right, here’s the thing: All the commenters on this page will be full on equity bullish because they’re more or less rational and know how things work. Here’s what happens in the real world though with Joe Average: The market drops 40%, he panics, decides it’s best to cut his losses, and sells like it’s 2008 all over again. (He won’t believe you when you tell him it’ll be back in 5 years.)
    We know for a fact that people buy high and sell low because the majority of them are emotional. This has happened over and over and over again in the past 100 years. So, when people close in on retirement it’s best that (the majority of them) lock in most of their portfolio in fixed income class before a small wave hits and they get stupid. I’m not saying it’s “best” for the overall value of the portfolio, but it’s the “best” course for the average investor.

  3. >>>i.e. you should have enough savings that you use less growth oriented and/or risky investments
    Why? Who says? Your emotions?

    Also, as I keep beating on 🙂 equities are not neccessarily risky. I believe you are confusing volatility with risk. They are not the same. Equities go up and down short term, but long term they go up. What’s risky about that? Not much in the long term. Ah, but you’re retired so we have to look at short term right?

    Really? What’s the investment timeline of someone who’s 65? 25 years? Is that long term or short term?

    Lots of rhetorical questions!

    1. I agree with Glenn (Life Insurance Canada). As long as you’ve got enough to live on for 5 years in safe investments, why not invest the rest in equities? I think it comes down to whether you can handle the volatility emotionally.

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