Advertisement
investing

Best Investing Moves for Pre-Retirees

You've accumulated money. Now, time to shuffle it around and get everything in order.

Once you reach your final five years in the workforce, you should begin shifting your portfolio toward the types of investments you’ll hold in retirement.

Prepare your portfolio

Start to gradually bring your asset allocation in line with your anticipated retirement portfolio. By this stage, you should lower your allocation to stocks to roughly 60%. Our portfolio also reduces risk in bonds by including only a 10% allocation to Pimco Income, which can hold up to 50% of its assets in high-yielding debt. The portfolio includes Vanguard Short-Term Investment-Grade, a conservative fund that invests in government debt and investment-grade corporate bonds.

Add income investments

Begin to build up positions in the income-generating investments that will become your bread and butter in retirement. This portfolio boosts holdings in T. Rowe Price Dividend Growth, which invests in companies that are likely to raise payouts. It also establishes a position in real estate investment trusts.

Find a live human to help

If you want to pay for a complete financial plan only once in your life, this is the time to do it. Perhaps you now own a large enough portfolio that you qualify for free or discounted advice through your online broker (although many robo advisers offer advice, we don’t think they are yet up to the task of singlehandedly planning your transition into retirement). If you want to find someone unaffiliated with a large firm, go through a fee-only network, such as NAPFA (www.napfa.org) or the Garrett Planning Network (www.garrettplanningnetwork.com).

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

Whoever you choose, do your homework. Check your adviser’s record with regulators. For brokers, that means searching on the Financial Industry Regulatory Authority’s BrokerCheck website (https://brokercheck.finra.org). For investment advisers, that means checking with the Securities and Exchange Commission (https://adviserinfo.sec.gov). Ask whether your adviser is legally required to act in your best interests, or if he or she may simply recommend investments that are suitable for you. Finally, be sure you understand how an adviser gets paid.

Portfolio

35% Schwab Total Stock Market Index (SWTSX) or ETF alternative: Vanguard Total Stock Market (VTI) 10% Vanguard Total Intl Stock Index (VGTSX) or ETF alternative: Vanguard Total International Stock (VXUS) 10% T. Rowe Price Dividend Growth (PRDGX) 5% Fidelity Real Estate Index (FRXIX) or ETF alternative: Schwab U.S. REIT (SCHH) 20% Metropolitan West Total Return Bond M (MWTRX) 10% Pimco Income D (PONDX) 10% Vanguard Short-Term Investment-Grade (VFSTX)

When munis make sense

Our portfolios include only taxable bond funds. However, if you are a high earner, you might be better off with municipal bonds for fixed-income holdings in taxable accounts. You generally pay no federal taxes (and sometimes no state or local taxes) on the interest from munis. Consider Fidelity Intermediate Municipal Income (FLTMX). Its 1.6% yield is equivalent to 2.8% from a taxable bond fund for someone in the top, 43.4% federal tax bracket. A good choice with less sensitivity to rising interest rates is Vanguard Limited-Term Tax-Exempt (VMLTX); it yields 1.1%.

Advertisement
Advertisement

Most Popular

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
Where You Should Invest Now
investing

Where You Should Invest Now

Kiplinger.com senior investing editor Kyle Woodley joins our Your Money's Worth podcast to answer investor questions about tech stocks, the election a…
September 22, 2020

Recommended

When Is Amazon Prime Day 2020?
spending

When Is Amazon Prime Day 2020?

Circumstances beyond its control have forced Amazon to move its annual Christmas-in-July Amazon Prime Day blowout sale in 2020 to ... later. Is Oct. …
September 22, 2020
A Step-by-Step Guide to Being an Estate Executor
retirement

A Step-by-Step Guide to Being an Estate Executor

Whether you’re planning ahead for your own heirs or have been asked to serve as an executor of an estate for someone else, it pays to understand what …
September 17, 2020
How to Finance Home Schooling Your Children
family savings

How to Finance Home Schooling Your Children

Kiplinger.com web editor Andrea Browne Taylor joins the Your Money's Worth podcast for a discussion on the financial pros and cons of homeschooling yo…
September 15, 2020
Should You Move Forward with Your Divorce or Wait?
family savings

Should You Move Forward with Your Divorce or Wait?

Despite the tensions brought on by the pandemic, a number of couples are waiting right now, with good reason.
September 10, 2020