What should 60-70-year-olds invest in?

Since Upward really doesn't focus on retirees or pre-retirement planning, this is not my predominant area of focus. However, from time to time, I get this question, so I thought it was worth discussing.

For people who are investing in their 60's and 70's, I automatically think of "preservation mode". Because these have typically been the years where Americans retire, being heavily invested in only stocks can create a devastating blow to that target retirement date. For example, let's say you were 65 in 2008 and your stock portfolio took a 40% dive. Guess what? That target retirement date just got pushed into the future.

What's the answer?

1. Diversification

2. Money Buckets

3. Regular Reviews


Diversification: As we age, we need to make sure more of our portfolio is focused on modest, consistent, predictable returns. Not only do you want to diversify between stocks, bonds, cash, and real estate, you also want to make sure you diversify between US and international holdings. Oh, and don't forget to not have too many eggs in one basket. Make sure you diversify among various industries and ladder your bond maturities.


Money Buckets: Because many of us get a late start in retirement savings, some people may need to play catch up. That being said, I don't recommend a person in their 60's or 70's to bet it all in the markets to try to grab onto a 20% annual return. This is where money buckets come in. A money bucket holds funds reserved for short-, mid-, and long-term time horizons. This takes planning to accomplish, but is an excellent way to manage capital preservation and need for growth. Short-term funds are used for 1-3 year needs and emergency funds and should be liquid and conservatively invested. Mid-term funds would be in the 3-7 year time frame and moderately invested. Long-term, 7 years plus, would be positioned for growth.


Regular Reviews: Most of us need the input and direction from a professional from time to time. Don't risk your future on doing it yourself. Even the best financial planner farms his/her own portfolio to a like-minded adviser for input, direction, and confirmation. I recommend a fee-only planner, CFP, and an advisor who doesn't make all his/her money on commissions for selling investments. Make sure they are performing as a fiduciary and initiate yearly comprehensive meetings at a bare minimum.

Seriously free FICO scores. Get yours now!

Seriously free FICO score monitoring! Say what? For those of you who don't know, if you have any of these credit cards, they will give your FICO score for free: Citi (my personal favorite), Discover, American Express, Bank of America, Barclaycard. It is available right on your statement or by logging into your online account. Do it. Knowledge is power. Earn some rewards, too. See the whole article in Kiplinger's HERE.

Which should come first: saving for our children’s college education or saving for our retirement?

I have had several clients and friends ask the question, “What should we save for first: our children’s college education or our retirement?”

My quick response is undoubtedly retirement. I was told very early on in my investment training that you can borrow for college, but you cannot borrow for retirement. Of course, that was before a reverse mortgage was considered a viable option. But, for me, even with that added tool, I still feel strongly about saving for retirement being the higher priority. Here’s why. 

Many of you, including one of my dearest and closest friends, have been faced with having to financially support aging parents who didn’t save enough for retirement or made poor investment and retirement planning decisions. I know one couple who will soon be paying for college for their children while simultaneously supporting an aging mother who no longer has financial resources above Social Security. These burdens have not only put tremendous stress on their personal finances, but also on their marriage, their ability to have the lifestyle they want, and on their relationships with both their parent and children as all have to sacrifice in this situation. 

Is this the gift you want to give your children? Do you one day want to be knocking on their door to take care of you in old age because you spent your retirement on their education? If the answer is yes, by all means, save for their college first! 

Keep in mind there are many ways to get help with college funding, including merit-based or athletic scholarships, grants, loans, military benefits, work programs, pre-paid college tuition programs, and even home equity loans. I also promote the idea of considering a less-expensive junior college if you have a child who may waffle in his or her commitment to being a university student. This allows for them to earn their way to a more expensive education by proving they are taking their education seriously. As with anything in life, you value what you earned through hard work far more than things that were just handed to you.  


So what should you do?

Based on the popular rule of “pay yourself first,” here is a simple guide forallocating your savings:

1. Invest in your company’s 401(k) program if they match. Invest up to the amount that qualifies for a match. 

2. Pay off any high-interest debt. This includes credit card debt, personal debt, and student and auto loans. 

3. Make sure you have a 6-month reserve of emergency savings. Total all of your must-pay expenses for a month and multiply by 6. That’s your mark for emergency savings. 

4. Invest up to the maximum in your Roth IRA (if you qualify) or traditional IRA. Right now, that’s $5,500 per year if you’re under 50. You can also contribute the same amount to a non-working spouse’s IRA.  Remember, Roth IRAs have education spending benefits built-in also. 

5. Work with a fee-only financial planner to determine the dollar amount you should be setting aside for your ideal retirement. Everyone’s number is different, but I generally use 10% of pre-tax income as a guide. Your number could be lower or higher than that amount. 

6. Then fund a 529 plan for your children’s education. If you live in a state that offers tax benefits for these accounts, you are essentially throwing money away by not opening a 529 plan to fund college expenses. 

But in the end, save for retirement first!