Rethinking retirement allocations

Lizzie O'Leary Oct 3, 2013
HTML EMBED:
COPY

Rethinking retirement allocations

Lizzie O'Leary Oct 3, 2013
HTML EMBED:
COPY

Maybe they’re things your mother and father drilled into you, or maybe you stumbled through some personal finance mistakes before you found them. But, no matter how they were instilled, there’s little rules we keep in the back of our minds when it comes to matters of money.

Occasionally, we find out that those rules aren’t as rigid as we once thought.

Tara Siegel-Bernard, writer for the New York Times, recently examined a new report that turns some advice on its head.

The traditional belief is that retirees should keep the majority of their retirement portfolio in the stock market. That can be risky, as we saw in 2008 and 2009. The new study, however, found that relying on the stock market isn’t always the best option. 

A better choice? Keeping as little as 20 percent in stocks, while the rest goes to bonds, which are usually more stable. Retirees are also much less likely to run out of money when they rely on bonds during retirement.

“There is a catch,” Siegel-Bernard says. “In this case, retirees would need to continue to buy stocks over the course of their retirement — probably about 1 percentage point more a year.”

Siegel-Bernard says this strategy makes sense because when you retire matters.

“Retirees are most vulnerable at the beginning of their retirement,” Siegel-Bernard says. “If you retire in a year like 2008, and the market crashes, you have to begin pulling money out just when your portfolio has been quartered or halved. So you’re basically locking in your losses.”

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.