The Stock Market Secret That Retirees Need To Know

One of my good friends sold her house last year in California.

The 69-year old plans to fund her retirement with the proceeds. After paying off her mortgage, she had about $500,000.

In April last year, we sat on the patio of her rented home overlooking Lake Chapala. She’s one of thousands of Americans living in a popular cluster of lakeside villages, just south of Guadalajara. The weather is perfect. The cost of living is low. But like so many other retirees, no matter where they live, she worries about her money. “How should I invest this?” she asked. “I need income. But I want to make sure the money lasts as long as I will.”

I suggested a diversified portfolio of low-cost index funds: about 60 percent in stocks and 40 percent in bonds. It would allow her to withdraw an inflation-adjusted 4 percent per year. That means she could withdraw more money every year. No matter how the market performs, her money should last at least 30 years.

Image by Pixabay

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Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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4 Responses

  1. Raj says:

    Andrew,

    Don’t you think advising an asset allocation of 60% stocks/40% bonds to be a bit risky for a 69 year old.? Should’t it be more like 70% stocks / 30% bonds? After all, there is less time and no salary to recover from a 1973-1975 style recession.

  2. Raj says:

    Andrew,

    Don’t you think advising an asset allocation of 60% stocks/40% bonds is a bit risky for a 69 year old.? Should’t it be more like 70% bonds / 30% stocks? After all, there is less time and no salary to recover from a 1973-1975 style recession.

  3. Passive Investor says:

    >“My money didn’t gain 4 percent. In fact, by the end of October, it had dropped from $500,000 to about $489,000. When I saw it drop, I decided to sell it all.”

    Ouch. She reacted like a roller coast patron that read a sign that said that the ride’s average speed was 35 kph, but didn’t see one that said that the top speed was 150 kph. Investors who have an understanding of the full range of returns they may encounter are better inoculated against reacting to their fears and greed.

  4. Vikas Kumar says:

    Thanks Andrew for this awesome Stock Market Secret.

    Thanks,
    Vikas kumar
    https://siteprice.net

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