Retirees - Buy Some Yellow AND Some Green Bananas!

June 25th, 2008 at 08:26am Brian Conroy

  Brian P. Conroy, CFP® 

Fixed income (bond) strategies alone can be a disaster in a rising cost world.  Here is a quick quiz: pick one:  

A) Your money will outlive you

B) You will outlive your money

C) There is no C Plan on A or you might inadvertently find yourself defaulting to B, and B stinks!     

When determining your retirement nest-egg investment strategy the most critical choice of investment allocation is typically a choice between growth and preservation.  Said differently, it’s often a choice between bond oriented strategies, and stock oriented strategies. 

I work with retirees and I can attest to the fact that many retirees do not believe they will live as long as they are actually likely to live.  The result is that many choose a very conservative “sleep better” preservation oriented bond strategy, and avoid the “eat better” growth oriented stock strategy.  The result is a great and very real risk of depleting the portfolio before the end of the rainbow.  They avoid the volatility of stocks, but accept the very real risk that bond returns alone will result in their running out of money if they only live an average life expectancy.  Remember that 50% of retirees will live longer than the “average.”  Most retirees need to balance growth and preservation due to the inevitability of inflation.   This means that  assets staying ahead of inflation must be part of the plan, and this means stocks will be part of the plan.  Don’t shoot the messenger!  You will VERY likely need to invest for both growth and preservation, and own both stocks and bonds.  Yellow bananas=bonds, green bananas=stocks.  

Consider adding a few years to the average life expectancy when you do your long term planning.  Follow the link for a fun little illustrated calculator that will give you some perspective about your personal potential longevity.http://www.nmfn.com/tn/learnctr–lifeevents–longevity_game  

Entry Filed under: Retirement Planning, Financial Planning, Investments