Ask an Advisor: We’re in Our 70s with $3.5M in Stocks – Is It Time to Shift to a 60/40 Portfolio?

I am 73 and my wife is 70 with one son. We have $235,000 in a savings account and we each have $250,000 in Roth IRAs. We also have $1.675 million in a brokerage account and $1.55 million in a 401(k). Everything other than the two Roths are invested solely in stocks and the two Roths are 60% stocks and 40% bonds. With Social Security and pensions, our monthly income is $11,000 and we save about $3,800 monthly. Should we change our brokerage and 401(k) accounts to a 60/40 mix and move some of our savings to money market accounts or bonds?

– Randy

Great question, Randy. It may make sense in your case to base this decision on what you want your money to do for you. Adjusting your asset allocation from 100% in stocks to 60% stocks and 40% bonds is a pretty standard move for typical retirees but I don’t think it’s necessary in your situation. Depending on your goals, your current asset allocation could have room for improvement, though. (And if you need additional help managing and investing your retirement savings, consider working with a financial advisor.)

Why a 60/40 Allocation?

The primary reason for holding a 60/40 portfolio in retirement is its balance between growth and stability. Ideally, the stock allocation powers the long-term growth of your portfolio so you don’t run out of money while the bond portion produces income for withdrawals.

This asset allocation may make sense for a lot of retirees who are taking regular withdrawals from their investments to cover retirement expenses. However, you don’t seem to be in that position.

If I read your question correctly, you have a guaranteed income of $11,000 per month and save almost $4,000 from that money. It sounds like you aren’t taking regular withdrawals from your savings and don’t need to. If you have $235,000 in a savings account and a total of $500,000 in Roth IRAs already in a 60/40 allocation, that adds up to $735,000 of relatively stable money. That’s a pretty substantial balance of readily accessible money, especially if you aren’t relying on it for regular cash flow. (And if you want an expert to evaluate your asset allocation or to manage your portfolio, this free matching tool can connect you with up to three financial advisors.)

Your 401(k) and Brokerage

You have several good options for the remaining money in your 401(k) and brokerage account. Depending on what you want to do with the money and the purpose it serves, I think you can either leave it invested aggressively or switch to a more conservative allocation such as 60/40 split.

If what I mentioned above about your cash flow is correct – that is, you and your spouse want to maximize growth with the remaining money – you could leave it invested as it is. You just have to be comfortable with potential market volatility. An aggressive stock-heavy asset allocation will provide a higher expected return that allows you to grow a larger balance over time but it will likely be much more sensitive to market swings.

However, long-term growth may not be your goal. If you would feel better with a larger balance dedicated to your potential spending needs, it would be perfectly fine to rebalance your portfolio and shift to a 60/40 split between stocks and bonds. Either way, I think you are choosing between two good options.

Of course, be mindful that your 401(k) is subject to required minimum distributions (RMDs). However, that doesn’t have to drive your asset allocation decision since you can simply take the distribution in-kind and transfer it to your taxable brokerage account if you want. (And if you need help managing your RMDs and limiting their tax impact, consider working with a financial advisor.)

Optimizing Your Savings

As for your savings, think about where this money currently resides. If it’s in a regular savings account earning something near the national average of about 0.5%, then you’d likely be able to get a better interest rate if you move it to a high-yield savings or money market account at the least. You can easily find these accounts offer APYs between 4% and 5%. On a $235,000 deposit, an extra 4.5% would be $10,575 more per year. That’s meaningful to most people.

Remember that the rate you earn on a high-yield savings account may change at any point, so if you want to lock in rates for a little longer you may also want to consider short-term bonds or certificates of deposit (CDs). If you decide to go with bonds or CDs, I’d recommend looking into spreading it out over a few different maturities using what’s known as a bond ladder or CD ladder. That way, all of your money isn’t tied up for the same amount of time.

When a bond or CD within the ladder matures, you simply reinvest that money into a new one. For example, perhaps you have a six-month CD and a 12-month CD. When the six-month CD matures you can buy another 12-month CD. Your original 12-month CD will only have six months remaining before it matures. You just repeat the process until you need to spend the money. (A financial advisor can help you set up a CD or bond ladder, or simply help you figure out how much you should keep in savings.)

None of this is mandatory, however, especially if your money is already in something like a high-yield savings account. If that’s true, you may find that the hassle of shopping around and moving your money will likely only yield a small increase and may not be worth the hassle.

Bottom Line

You seem to have sufficient cash flow from your Social Security and pensions, with an adequate savings balance to cover unplanned expenses. Either of the asset allocation moves you mentioned could potentially be appropriate depending on your goals for the money. If you want to bolster your retirement income for added security, then a 60/40 allocation would serve your needs better than your current 100% stock allocation, but your current allocation may lead to a larger balance over time.

Retirement Planning Tips

• Your portfolio’s asset allocation should typically align with your risk tolerance, goals and/or time horizon. SmartAsset’s asset allocation calculator can help you determine how much of your portfolio should be invested in stocks, bonds and cash based on your risk profile.

• A financial advisor can help you make important decisions surrounding your retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column. Questions may be edited for clarity or length.

Please note that Brandon is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset, and he has been compensated for this article. Questions may be edited for clarity or length.

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