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Keep a long term perspective — but what about retirees?

Keep a long term perspective — but what about retirees?

I’m constantly seeing the urgings of investment institutions to “keep a long term perspective” on stock market investments. This makes complete sense, because short term investments that you actually NEED should be in less risky places. (And also because of course investment institutions would like you to keep your money invested.)

The problem comes if you are a retiree. Conventional wisdom says that as you approach retirement age, you should move more and more of your assets into safer and safer vehicles. That’s fine, but is it realistic? And how do you figure out when to do so?

Take my family members, for example, who have a habit of retiring either early or as soon as they reach traditional retirement age. So…say you’re 50, and you know that your life expectancy might be anywhere from 5 more years to more than 40 more years. When does moving more and more of your assets into safer and safer vehicles come into play?

If you move them at age 50, your assets are probably not going to produce enough income to counteract inflation. (Unless you’ve really built up an enormous sum of money to start with.) But if you wait until you’re 80 (because the 10 years until you’re 90 is still considered “long term”) you’re in for a lot of fear and worry in a market like this. What if you live to be a hundred? (And it IS possible, more and more.) There’s so much uncertainty, and it’s hard to find a happy medium, but I guess that should be the real goal.

Moderation in all things, right?

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  • I don’t like to tell others what to do, but I can tell you what my own strategy is. I’m invested 100% in stocks for money I won’t need for 3 years. I’ve hear others who are more conservative than I am use 5 or 7 years. This strategy guides all of my financial decisions including tax obligations, paying for my sons’ educations, and retirement.

    If I were about to retire from a full-time job, I would already have 3 years worth of livings expenses in cash or short-term bonds. By default I would be planning to sell some stocks now to get cash to live on 3 years from now. Given that stocks are taking a beating, I’d reduce my expenses to make my current 3 years worth of living expenses stretch into 3.5 or 4 years worth. This would allow me to delay selling stock for a while in the hope that prices rebound somewhat.

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