The traditional recommendation for the investment of a retiree’s money was to move away from riskier investments and focus on “save assets” to preserve their nest egg, says host Mary Walden. “But now I understand some financial experts say this might not be the best approach. What are they saying?” she asks her husband, N.C. State University economist Mike Walden.
Mike Walden: “Well Mary, if you lump investments into two broad categories — stocks and safe bonds — and safe bonds would include things like treasury securities, corporate bonds and even certificates of deposit — the notion was, or the rule of thumb was, that as you age, you want to move out of stocks and into those safe bonds. In fact there was a recommendation that the percentage of your investments that you have in safe bonds should equal your age.
“So, for example if you’re 50, have 50 percent of your money in safe bonds. If you’re 80, have 80 percent. There are some investment analysts and economists even who are actually rethinking this. And I think it’s actually being motivated by the fact that we’ve been in an extraordinary period recently of very, very low interest rates, meaning that the interest rates that you get on your safe bonds is very, very, very low and in fact some CDs are hovering around 0 percent in terms of what they give you.
“And this is making it harder for people who may be started their retirement planning decades ago to get the kind of money — the return on their investments — they need to live the kind of lifestyle they want to. So, there’s been a rethinking of that old rule of moving away from stocks as you age; maybe we need to back off of that. And maybe we need to actually have, as you age, a little bit more of your money in stocks.
“Now, I’m not saying that you’re going to try to hit home runs with your stocks, but perhaps putting a larger percent of your money than you did in the past in, say, a low-fee mutual fund that invests in a diversified set of stocks. So, there is some change in thinking here, and I would encourage people who are in the retirement phase of life to give this some thought.”