5 steps to help position your portfolio as you near retirement

As you edge closer to retirement, you’re probably feeling excited about all the wonderful plans you’ve made over the years finally coming to fruition. However, along with that sense of excitement, there might be  some trepidation about what it might feel like to start taking money out of your savings instead of the other way around.  

You may be asking yourself, “Should the level of risk in my portfolio change, and if so, by how much?” Although investing involves risk, there are risks to not investing as well, such as the risk of not keeping up with inflation and the risk of outliving your money. Consider these five actions as you think about your investment strategy.  

  1. Plan on living longer than you think. Thanks in part to improved medical care, people are living much longer than they did in the past. In fact, over the past 50 years, the U.S. life expectancy has increased from 71 to 77.1 While this is something to celebrate, it also means that your retirement savings need to last longer, which is why growing your investments, and thereby taking on some investment risk, is important. 
  2. Maintain your balance. While growth is still important in retirement, short-term market declines — especially early in retirement — can pose a serious risk to your retirement strategy. Consequently, it’s important to have balance in your portfolio — growth investments to provide for your long-term income many years from now, with an allocation to fixed income and cash to provide for your near-term income needs. 
  3. Use cash appropriately. Cash can be a valuable asset, but it should be used appropriately. After factoring in outside sources of income such as Social Security, we recommend retirees have cash to cover at least a year’s worth of current expenses, plus three to five years’ worth of expenses in short-term fixed income. This cash can provide for your current spending in retirement and help ensure your short-term needs are covered in the event of a market decline. You’ll want to begin building these cash and short-term fixed-income holdings ahead of retirement so that you’re appropriately positioned when you get there.
  4. Invest in companies that grow dividends over time. While it may be tempting to look for investments offering the highest dividend or interest rate, oftentimes the higher the rate, the higher the risk of investment. Instead of chasing the highest-yielding investment, we prefer companies that have a track record of growing their dividends over time. These investments have the potential for rising income over time to help offset inflation. 
  5. Stick to your investment strategy. Typically, what prevents most investors from reaching their goals is not market volatility itself but their reaction to volatility. Investing based on emotions can often lead to one lasting emotion: disappointment. By knowing your risk tolerance in advance, you can better control your emotions and stick to your long-term strategy during the inevitable market corrections along the way. 

It’s important to remember why you’re investing — to reach a financial goal. And if living comfortably in retirement is that goal, the key is balance — not too much investment risk, but enough growth potential to account for inflation and a long life expectancy. It’s important to talk with your financial advisor to ensure your strategy is best positioned to help you reach your goals.


[1] CDC, 2022.