- A 71-year-old who was featured on the blog ESI Money said he retired from a 31-year career in financial planning when he was 66.
- The retiree specialized in advising wealthy clients five years pre- and post-retirement.
- He told John of ESI Money that he would ask every client the same question: “Do you need to get rich or do you need to STAY rich?”
- Their answer would guide their investment strategy in retirement — if they still needed to accumulate money, they should be invested in stock index funds, he said. If they simply wanted to preserve their wealth, they should reduce or eliminate their exposure to common stocks.
- Need help with your plan? SmartAsset’s free tool can help find a retirement planner near you »
You have to be prudent with your investments to retire comfortably, and that’s often where financial advisers come in.
In a recent interview published on the personal-finance blog ESI Money, a 71-year-old who spent three decades as a financial adviser said he worked specifically with wealthy clients five years before and after retirement — a period of life he called “The Red Zone.”
About five years ago, he retired himself. “Just as I advised my clients, I retired when I was convinced that I had more than enough dough to get us past our life expectancies and have some left over for our children and charities and of course, Black Swan events,” he told ESI Money’s John, who doesn’t share his last name online.
“I would often ask my wealthy clients ‘what is the point of working when you don’t have to?’ I would often tell the story of too many hard workers found dead at their desks,” said the man, who lives in Florida with his wife of 50 years. “Then I quote William Bernstein: ‘When you’ve won the game, stop playing.‘”
To find out whether his clients’ investments were in shape for retirement, he’d ask them: “Do you need to get rich or do you need to STAY rich?”
“If they truly needed to still get rich, then they need to stay invested to a large extent in common stocks and hope there will not be an extended huge decline in the stock market just when they start withdrawing their recommended 4% annually,” he said. For those who hadn’t yet reached their nest egg goal, investing in stocks through index exchange-traded funds (ETFs) could provide a high potential return.
“However, if they need to STAY rich, then they need to greatly reduce or eliminate their exposure to common stocks,” he said. That meant relying more on fixed-income investments and some passive investing in index funds in order to preserve their wealth.
Need help with your plan? SmartAsset’s free tool can help find a retirement planner near you »
Most experts recommend reducing risk in your investments as you age
The man’s advice follows a truism in investing: The older an investor, and more specifically, the closer they are to retirement, the less risk they can afford to take on.
“When we get older, we just make more dumb decisions plus we are more vulnerable to fraud and identity theft,” he said. “Just leave investing to the index funds at extremely low costs.”
For his part, the former financial adviser retired at age 66 with $3.5 million. At the time, about 5% of his and his wife’s nest egg was in cash, 35% in fixed-income products (bonds and annuities), and 60% in equities (dividend ETFs). The man waited to claim Social Security until age 70 to get the maximum payout, and he gets distributions from a pension plan. They plan to self-fund future long-term care, which can be a large expense.
“If you have won the game, but you persist in your habit of being exposed to common stocks when the market is at a new all-time high and the economic expansion is in uncharted territory, then you run the unnecessary risk of a prolonged downturn in both the economy and the stock market,” he said.
He continued: “What is the point of taking unnecessary risks and blowing up your retirement? Do you want to risk having to go back to work and/or greatly reducing your lifestyle? If you won the game, get out of stocks and into principal preservation of fixed income.”
Need help with your plan? SmartAsset’s free tool can help find a retirement planner near you »
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