Fifty-something just beginning the second half of life, and members of the Red Hat Society understand that the fun is just beginning. You need to have an investment plan that can last the second half century as well as you will.

The decade before retirement is the time to make sure that you have an asset allocation strategy in place that will last for a long time. During your working years, asset allocation mistakes do not affect your lifestyle, but during retirement your livelihood depends upon a steady appreciation of your assets.

Determine what asset allocation is appropriate. Our firm doesn’t need a risk analysis questionnaire to set the amount of investment risk in a portfolio based on a client’s emotions. Our goal is to help our client’s meet theirs. We do so by looking at a client’s financial goals and determining the investment mix that has the best chance of meeting those goals.

For clients with a conservative investing style, they must realize that during retirement they have to have enough appreciation in order to keep up with inflation and make their resources last for the next few decades. This may push them to be more aggressive than they had anticipated. For aggressive investors they must realize that the wild returns they are so comfortable with have a greater chance of causing them to miss their goals than if they moved a little more conservative and gave up a little average return. Lowering the expected return of a portfolio usually also lowers the standard deviation and can actually increase the chances that even the lower end of the possible returns will be above what is needed. It doesn’t get much worse than having to go back to work just because the market had a bad year.

One of the dangers during retirement is inflation or the dropping value of the US dollar. If your portfolio becomes too conservative the buying value of your portfolio will be severely degraded. My grandmother used to be able to buy a week’s worth of groceries for about five dollars. Had you told her that she would need over a hundred thousand dollars to retire comfortably she would have said that you were crazy.

We are all gradually becoming more and more like our grandparents, noticing how much prices have gone up. There are many reasons why inflation and a devalued dollar will only continue. Inflation is why being invested entirely in fixed income a dangerous strategy.

This doesn’t mean you shouldn’t have any bonds. Some clients set up a laddered bond portfolio to provide income for the short-term allowing them to invest the remainder of their portfolio for growth over the long-term. But you should diversify your bond portfolio to include foreign bonds, balancing your bonds with hard asset stocks (energy, REITS, lumber, gold stocks). These changes will actually increase your average returns and decrease the impact that inflation or a falling dollar will have on your retirement lifestyle.

For aggressive investors, we recommend diversifying their portfolios away from the volatilities of information and technology sectors and investing more in service and manufacturing. It is also important to be invested outside the US. At the height of the US markets, some families believed that they could retire and live off the 18% returns they had grown accustom to. Many had to come out of retirement after the losses of 2000-2002 and start working again both because they had over-estimated returns, and also because they had not diversified their portfolios out of US investments.

During working years we recommend families save 5% of their take-home pay as taxable savings using an automatic monthly transfer from their checking accounts into their investment accounts. During retirement, the flow will go the other way providing them with a steady stream of income.

Finally, start practicing cash management. We recommend that clients have 2-3 months of cash in their checking account. Additional funds should be in an investment account in order to provide the greatest growth possible. The investment account will also have some cash assets for liquidity as well.

Photo by Anthony Tran on Unsplash

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Read the entire series at:

• 50+ Retirement Planning – Part 1
• 50+ Retirement Products – Part 2
• 50+ Retirement Investing – Part 3