Portfolio Longevity


So you finally made it to retirement. No more pressure, no more daily grind. What a joke. All the things you thought would happen when you were in your forty’s were so believable then and you fell for it, hook, line, and sinker. Now, instead of worrying about putting into the retirement pot, you end up worrying more about making it last.

Here are the three main factors that drive portfolio longevity: asset mix, spending level, and investment time frame. Two out of three will give you at least some control.

Asset Mix. Asset mix describes the ratio of stocks to bonds and diversification of asset classes in a portfolio. A higher allocation in equities increases the risk of experiencing periods of poor returns during retirement. The diversification between asset classes can reduce the amount of volatility and spread the threat of too much exposure to a concentrated area of the market. If you can handle the risk, having more equity exposure in a portfolio enhances its return potential.

Spending Level. This is typically looked at as a specific dollar amount, say $5,000 per month, or a percent of the beginning of the year value of the portfolio. Withdrawing a specified dollar amount, when adjusted for inflation, can provide a stable income stream and preserve your living standard over time. This usually works best when the withdrawal represents only a small portion of the retirement portfolio. The percent of beginning of the year portfolio value is a good way to live within the means of the retirement portfolio, adjusted for inflation and reflected for market performance of the retirement pool. Retirees with an equity allocation of at least 60% can withdraw 4% of initial portfolio value and enjoy a high probability of never running out of wealth.

Investment Time Frame. How long does the pot have to last is the most uncertain part of the portfolio longevity equation. Do you want your last check to go to the undertaker and bounce, or do you want contribute to your children’s wellbeing, or maybe leave a legacy for the charity or the community you love. The longer the time estimate, the more important the diversified equity portfolio management has to be.

Planning involves making assumptions about the future and they are impossible to predict. The stock market has practically doubled since the decline ending March 2009. Not many thought that was possible during 2009 or 2010, especially in light of the European banking crisis, the political upheaval in North Africa, the Gulf oil spill, and now the Japanese earthquake and tsunami. Managing an investment portfolio during these uncertain times is best done with professional help. We, here at WealthPoint Advisors LLC, are proud of our contribution to our client’s portfolio longevity team and we want to continue to do our part in building your family endowment.

About the Author: Michael Skehan

Michael Skehan, CPA, PFS, Senior Advisor is a well-known industry leader who has been recognized for his outstanding contributions both by his peers and community. Skehan was with RJ Pile for 44 years prior to retiring as managing partner to join WealthPoint Advisors LLC.