Aren’t You Planning On Living After You Retire?

It seems many upcoming retirees come in to our office and tell us, "Well, I've only got five years."

"Really?" I ask, "Are you terminally ill?"

They look at me funny and say, "No, no, that's when I want to retire."

It always puzzles me that people confuse their investment time-horizon with the amount of time they have until they retire. After all, I hope they plan on living for quite some time after retirement, which means their investment time-horizon could easily be thirty plus years... not five.

They way you invest for a thirty year time-horizon is substantially different than the way you invest for a five year time-horizon. If you need to use all your money in the next five years, put it all in safe investments.

If you need your assets and your income to keep pace with inflation over a potentially long time-horizon, you'll need to look beyond safe investments; instead thinking about placing your funds in short, medium and long term buckets, each designed to provide you with income for a certain decade of your upcoming life. I describe such a philosophy in Strategies For Creating Retirement Income From A Portfolio. You could also layer a small allocation (less than 15% of your total portfolio) to high yield investments as part of a long-term strategy.

Remember, one of the simplest ways to pick the right investments is to match your investments with your true investment time-horizon. Short term investments for short term needs; long-term investments for long-term needs.