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I’m in my late 50s but am retiring at 60. My partner, who earns $110,000 gross per year, plans to retire in four or five years. Our asset allocation is 90-per-cent equities (60-per-cent U.S. and 40-per-cent Canadian) and 10-per-cent cash. All registered accounts are maxed out, and we both have non-registered accounts as well. Should our investment risk level be decreased even though my wife’s time horizon is much longer?
We asked Jillian Bryan, senior portfolio manager and senior investment adviser at TD Wealth Private Investment Advice, to answer this one.
Ms. Bryan agreed that it is the right time to reconsider risk exposure. “A 90-per-cent equity allocation is aggressive for someone approaching retirement, especially when you’ll soon start drawing from the portfolio,” she said. Sequence-of-returns risk – the danger of poor market performance early in retirement – can significantly erode long-term wealth, she noted, even if average returns look good on paper.
“We cannot stress enough how much the sequence of negative returns can materially impact your retirement portfolio,” she said. Given the market is at an all-time high, she added, there’s risk that your current asset mix is built only for market perfection.
What can help with this is a bucketed structure plan. “One to three years of cash and short-term fixed income for known expenses, mid-term (four to 10 years) of balanced holdings to generate income and moderate growth and long-term (10-plus years) growth-oriented equities to protect purchasing power,” Ms. Bryan advised.
“Moreover, a more balanced approach – perhaps 60- to 70-per-cent equities and the rest in high-quality bonds and alternatives – can provide a smoother ride and reduce the need to sell equities in a downturn to fund expenses.”
Your partner’s continued income provides a cushion, so you don’t need to rush to derisk completely, but, according to Ms. Bryan, this is a prudent time to shift gradually toward a portfolio that can weather volatility while supporting predictable withdrawals.
Finally, liquid alternative investments (or liquid-alts, which are alternative investment vehicles that aim to be more accessible to investors) are an often-overlooked component of portfolios, she said. “We position liquid-alts to protect you in a declining market and may even generate positive gains when the rest of your portfolio is declining in value.”
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