Life has a way of happening, and investors should consider life changes as a time to assess retirement portfolios and long-term goals.
Life happens. One day, you’re a carefree 24-year-old touring craft breweries and rocking at live concerts. And before you know it, you’re sniffling and waving goodbye as your firstborn heads off to college. You’ve learned to adjust to the vicissitudes of life, but have you tweaked your retirement portfolio along the way?
If you haven’t, you could be endangering your financial future. As your life circumstances change, so could the risk characteristics of your retirement portfolio.
A retirement portfolio typically relies on risk tolerance and asset allocation. While planning for the rest of your financial life, pay attention. “Be aware of anything that is going to change your risk tolerance,” says Ryan Campbell, education content manager, TD Ameritrade. Many investors view this as a high priority.
What kinds of things can alter your life landscape? Here are a few:
Yes, children made the list twice. There are the costs of having a child—the medical and lifestyle costs associated with pregnancy, birth, and such. But there are also the ongoing expenses—food and clothing, education costs, sports activities and their gear, medical care, orthodontia (do you have any idea how much braces cost?). A recent USDA study puts the total cost to raise a child at about $14,000 a year.
Then as the years go on, there could be:
The possibilities aren’t exactly endless, but you get the point: There might be a dozen life-altering events that could prompt you to reassess where you’re going financially.
For years, some financial consultants recommended subtracting your age from 100, and the result would be your percentage allocation to stocks. So at age 30, your portfolio might be 70% stocks and 30% bonds and cash; at age 60, it might be 40% in stocks and the rest in bonds and cash investments, and so on. But that guidance has been challenged in recent years, partly due to the growing number of centenarians in the U.S.
Another long-held suggestion is to keep your bond allocations close to your age. So if you’re 65, your portfolio might be 65% bonds and cash equivalents, against the more aggressive stock piece. It’s important to note, though, that any rule of thumb is simply a starting point; investors should tailor the mix to their personal objectives and risk tolerance.
“The longer-term perspective is key,” says Campbell, who adds that it’s also important to determine the financial personality of your spouse or significant other, as well as their work history. “If there’s only one breadwinner, the stay-at-home parent is going to be behind in savings for 401(k)s and the like,” he says. “That’s a life-changing event that could prompt some investors to reassess their goals.”
Campbell also suggests being mindful of two big variables that can work against your retirement nest egg: taxes and inflation. Tax-deferred accounts such as IRAs and 401(k)s are allowed to grow federal tax-free, but once you start taking distributions, those withdrawn funds are taxed at prevailing rates. None of us knows for sure what those rates will be in the future. And inflation, although muted in recent decades, could crop up at any time and erode the real value of your retirement dollars.
And how do you decide upon that portfolio mix, and when and how to tweak it along life’s journey? Speaking with a financial professional can certainly help, but Campbell also suggests arming yourself with education such as that provided by TD Ameritrade.
Investools, Inc. and TD Ameritrade, Inc., are separate but affiliated companies that are not responsible for each other’s services or policies. Ryan Campbell is not a representative of TD Ameritrade, Inc.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
All investing involves risk including the possible loss of principal
Asset allocation and diversification do not eliminate the risk of experiencing investment losses.
TD Ameritrade does not provide tax advice. Clients should consult with a qualified tax advisor with regard to their specific tax circumstances.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Neither Investools Inc. nor any of its officers, employees, representatives, agents or independent contractors are, in such capacities, licensed financial advisors, registered investment advisers or registered broker-dealers. Investools Inc. does not provide investment or financial advice or make investment recommendations, nor is it in the business of transacting trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client's situation. Nothing contained in this communication constitutes a solicitation, recommendation, promotion, endorsement or offer by Investools Inc. of any particular security, transaction or investment.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.