Retirement For Life

Four Questions Retirees Should Ask Themselves About Their Investment Allocations - Ep 35

• Christian Cyr, CPA, CFP® • Season 2 • Episode 35

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Asset allocation is a critical yet overlooked component of retirement planning, with most retirees unaware of their current investment mix and appropriate risk levels for their situation.

• Two primary asset classes for retirees: stocks (growth-oriented but volatile) and bonds (stable income but limited growth)
• Typical retirement allocations range from 50/50 to 60/40 stocks/bonds, but individual circumstances vary widely
• Consider proximity to retirement, risk tolerance, income needs, and personal financial situation
• Most common mistake is letting emotions drive investment decisions (recency bias)
• Proper diversification within each asset category is essential
• Avoid overconcentration in employer stock or any single investment segment
• Successful retirement planning integrates investments with Social Security, taxes, and income planning
• Secure essential income first, allowing appropriate risk-taking with remaining assets

Check out our website at Cyr Financial Wealth Advisors to learn more about our AIM retirement system and how we can help you build a comprehensive retirement plan.

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Introduction:

Retirement for Life, your passport to a comfortable and confident retirement. The podcast that's equal parts education and entertainment, where we break down the retirement maze with a dash of fun and a heap of wisdom from your host, Christian Sear, CPA, the passionate retirement specialist and president of Sear Financial Wealth Advisors. The independent registered investment advisor specializing in the AIM retirement system.

Christian Cyr, CPA, CFP®:

Okay, back to the Retirement for Life podcast. We are here today to talk about asset allocation for retirees, an extremely important topic, something that most retirees probably don't pay attention to enough, and something I'm going to talk to Now. Andrea here came across a wonderful article that we're going to share with you today in the Wall Street Journal. Andrea, thank you for that. Appreciate it it is. The title of the article was Four Questions Retirees Should Ask Themselves About their Investment Allocations, and we thought we'd make it fun where Brooke's going to ask the questions, and then you can pause the podcast if you want to, and you can answer these questions yourself and you can see if you got the question right or wrong. I will tell you that today has been a rough day so far, because this is actually not the first time we've shot this podcast, but the second time, and whose fault was it that we're recording this again?

Andrea Brannon, CFA®-IF:

Well, it wasn't me and Emma or Brooke.

Christian Cyr, CPA, CFP®:

So the great news is is that this podcast version is going to be better, quicker and ideal. So we're going through this a second time today and I hope you get a lot about this. It is critical because most people need to understand the risk involved with their portfolio and what's appropriate. Now, before we get started, I'm going to ask Emma to kind of break down two basic asset classes that all retirees need to be aware of. Of course, there are a lot of asset classes, but for all intents and purposes for this show and for most retirees, they're essentially two asset classes. Emma, you want to tell about the two asset classes that we're going to be speaking about today.

Emma Bean, CFA®:

Sure. So the first one is stocks or equities, which, when you think about that, it's the typical stock market, the S&P 500. There's a lot of risk there, as of lately we've seen a lot of volatility, where the market moves 3% or 4% in a day or more, but that's also where we see a lot of growth. So if you're in it for a long period of time, typically that's where the largest growth will take place. The second asset class, then, is bonds. Bonds pay a steady interest rate. You get your principal back at the end of the term if the company does well, and they're a lot more stable and safe. But they don't always pay super high interest rates and aren't necessarily there for extreme growth like the stock market is.

Christian Cyr, CPA, CFP®:

All right. So you have the big, nasty stock market that doubles every seven to nine years, and you have the boring old safe bonds which don't go up that far, that fast, that much, and so today we're going to say everyone's situation is different. At the end, after we answer these four questions, we're going to talk about what's the perfect asset allocation for you and how to identify that. But just keep in mind, as we're talking about these things, there are hundreds and probably millions of retirees in the United States of America, so this is a general conversation that we're going to talk about. Just remember that your situation is not the same as everyone else. So, brooke, what is the first question retirees should be asking themselves about their portfolio allocations?

Brooke Fay:

Yeah, the first one is is my current stock bond mix reasonable at my age?

Emma Bean, CFA®:

We hear this a lot and we see this a lot in YouTube comments, people asking what should my allocation be? I'm 60. And really there's a lot of misconceptions about allocation and age. There's some general rules you can follow, but it's very specific to a person's situation. Are they close to retirement? If you're within five years of retirement, you want to be a lot more conservative. What do you need from your portfolio? Are you looking for income? Do you have other sources of income that allow you to be a little bit more aggressive? And then, what are your specific goals? So there's a lot of things you need to think about other than just your age.

Christian Cyr, CPA, CFP®:

So, Andrea, what would you say? The industry thinks that the average retiree should be. How should they be allocated?

Andrea Brannon, CFA®-IF:

I would say the average thought process is 50% equities, 50% bonds or a 60-40. This is 50% equities, 50% bonds, or a 60-40 is a typical, if you were to just kind of Google it that's what most would say.

Christian Cyr, CPA, CFP®:

So at least half, but maybe slightly over half, of your portfolio should be in that stock market according to the institutional investment managers. That are the institutional investment managers that are creating retirement portfolios. So you know, a 60-40, 60% in the stock market, 40% bonds is at least a good starting point, but everyone's different, aren't they? Which leads us to the next three questions.

Brooke Fay:

Brooke, what's the second question?

Christian Cyr, CPA, CFP®:

Do I have personal reasons that call for a different allocation. Okay, so stop right here. So I think one of the things that's missing in this article is that you Most retirees, Brandon what percent of retirees even know what their asset allocation is?

Andrea Brannon, CFA®-IF:

Yeah, when we ask, typically they don't know and a lot of times they're too aggressive.

Christian Cyr, CPA, CFP®:

Yeah.

Andrea Brannon, CFA®-IF:

And they don't even realize.

Christian Cyr, CPA, CFP®:

And so really it should be five questions. The first question could have been what is my asset allocation? Because, frankly, the majority of retirees don't know and they should. It's like not knowing your shoe size. When you go to buy shoes, before you ask which size should I have, you should say, well gosh, right now I'm wearing a size nine. Is that correct? And most people don't even know that they're wearing a size nine shoe, which sounds funny, but it's the truth and you're right. A lot of retirees come in and they've just lost track of their asset allocations and so they tend to kind of set it and forget it and then pretty soon, yes, they are 65. Now they are retired or going to retire, but they really never touched their portfolio. And therefore you guys are talking to somebody tonight, actually, and what's his asset allocation?

Emma Bean, CFA®:

Yeah, his 401k is 100% allocated to equities.

Christian Cyr, CPA, CFP®:

That is just a recipe for potential disaster. There is a five-year window, we know, before your retirement, where you need to protect your principal. Being 100% in the stock market right before you're about to retire is a potential recipe for disaster. So back to the question what was it? Special circumstances that you may want to change your asset allocation? What would that be?

Andrea Brannon, CFA®-IF:

Yeah, like personal reasons, you know, and that's the whole thing is that's why we got to get to know our clients, because you don't know that. You know without getting to know them on a personal level.

Emma Bean, CFA®:

Yeah, not only do we have to look at how they should be invested from an age you know proximity to retirement but also what is their tolerance for risk. We see a lot of people that are invested fairly aggressively and then, when the market drops, they freak out, they put their emotions into it.

Christian Cyr, CPA, CFP®:

Wait, wait, wait, wait. A second, Did you say? Sometimes retirees freak out when the market dips 8%? I don't believe that. Is that true?

Emma Bean, CFA®:

Andrea, very true. And they'll say, you know, on their questionnaire I'm okay with risk, I'm looking for growth, but in reality they aren't. They're not comfortable with that drop and they're not willing to stick it out.

Andrea Brannon, CFA®-IF:

Yeah, and that's bitten us a couple times with people where you know they believe themselves to be an aggressive investor, but when you know things actually took a turn for the worse, they were not actually tolerant of the loss, they just were wanting the gain and that's not really, you know, realistic.

Christian Cyr, CPA, CFP®:

Here's a notice for every single person listening or watching to this podcast right now, and it just is very frustrating frustrating as a financial advisor when you hear people say this, and I've had just this past week a brand new client tell me this, and I've also had I can think of, at least I can think of a lot, but one person I have in mind who still, to this day, says this hey, can you invest my money? So it goes up, but I don't want to lose any money. Is there such a thing, ladies?

Emma Bean, CFA®:

No.

Christian Cyr, CPA, CFP®:

Yeah.

Emma Bean, CFA®:

You can't have the best of both worlds, unfortunately.

Christian Cyr, CPA, CFP®:

Wouldn't that be awesome if they made something that makes money but never loses money? I mean, it's possible, but it has to be some sort of insurance product, right? Right and that comes with a whole other bunch of strings attached. Yeah.

Andrea Brannon, CFA®-IF:

I mean, if you can guarantee a 3% return, you're also not going to make 20% when the market goes up.

Christian Cyr, CPA, CFP®:

Right, I can do that. Last year, the market was up 22%. You made 3%. Are you happy with that? No, you're upset, right? So there are trade-offs here, but there are many reasons why, as I said at the beginning, that some people maybe wouldn't go with a 50-50 portfolio or a 60-40 portfolio. Another great reason is, you know Elon Musk. I'm sure he can afford to take a lot more risk because he's one of the richest men in the world, and so that's just a very good example of why you may be different than the average person. So there's a lot of reasons. So, brooke, what's the third question? Retirees should be asking themselves about their portfolio.

Brooke Fay:

Yeah. Third is do my allocations reflect my current market views or a long-term strategy?

Emma Bean, CFA®:

This is probably the biggest mistake that retirees can make is bringing their emotions into things and taking a very short-term view of their allocation. We want to look at a long-term decade, 20-year plus view of things so that you are positioned for the remainder of your retirement for growth, but also so that you can sustain those downswings and stick it out for when the market recovers. You do not want to pull out right at the low and miss out on the future growth.

Christian Cyr, CPA, CFP®:

I've made videos about people make mistakes all the time. Andrea, tell me what recency bias is and how it works when you see it on a daily basis with clients that you work with.

Andrea Brannon, CFA®-IF:

Yeah, I was actually reading about how recency bias has a huge effect on how people want to invest. So right now, with the market volatility, people are trending to be a little more conservative, where for the last 16 years, generally speaking, the market has been going up. So that's why you see a lot of portfolios for retirees being too aggressive. So people are very affected by what's in the news, or their emotions and how it makes them feel, and that in turn changes how they want to be invested.

Christian Cyr, CPA, CFP®:

That's the number one reason. For decades, the research shows that retail investors drastically sadly underperform the market. It's not because they made bad investment choices. It's not because they picked stock A over stock B. It's not because they picked a different mutual fund than the person next door. It's because they brought their emotions into it.

Christian Cyr, CPA, CFP®:

Picture your investments, your portfolio, hopefully being managed well in a diversified fashion, in one corner and just lock it up, don't touch it. Your feelings about what you think about the president did not dictate your long-term portfolio. Your feelings about how the world's changing and I don't feel good about the future could not dictate your long-term 30-year retirement investment strategy. Your next door neighbor losing his job and they're going to lay off 10,000 people at his company does not could not impact your investment strategy. I think it's very important and probably the biggest mistake we see, where clients, people, friends, neighbors Mix feelings with investing A recipe for absolute disaster. It's like oil and water. Yeah, great, great point. So what's the last thing that retirees should be asking about their investment portfolio and their investment allocations?

Brooke Fay:

Yeah. The fourth and final is do I have enough diversification within each portfolio category, enough?

Emma Bean, CFA®:

diversification within each portfolio category. Yeah, this is something people often overlook. If we're talking about 50% stocks and 50% bonds, on a surface level that sounds like a perfect mix of assets, but in reality you also have to look at the underlying holdings within those two buckets. You don't want to over-allocate to one specific area of those two buckets, whether that be 100% large caps, where you're missing out on growth in small caps or international stocks. Same with bonds. If you over-allocate to one portion of the yield curve, you're missing out on a lot of the changes in the yield curve further out or closer to, a lot of the changes in the yield curve further out or closer to. So you want to make sure that even within those two categories you are diversifying.

Christian Cyr, CPA, CFP®:

Yeah, it's like having a well balanced diet Too much of anything will kill you and having a little bit of everything is going to give you the best overall experience. Typically, andrea, tell me about people who we run into, who often make a mistake with this, who have worked at a major public company for many, many years. What do we see these people do too often?

Andrea Brannon, CFA®-IF:

Yeah, we see a lot of times where people own a lot of this company stock from where they worked for however many years, and a lot of times they have trouble letting it go because they are biased towards it. They think they know how it's going to perform.

Christian Cyr, CPA, CFP®:

And so we struggle with that. I love it. You know, I always want to say to people who I don't want to hurt their feelings yeah, you might've worked at company XYZ for the last 35 years, but you have no idea what the CEO is doing in the boardroom and you have no idea what's going on next. And even though you feel like you know this company, it doesn't mean that you should have 20% of your nest egg in that company, because things can go wrong quickly and we've seen this go bad fast.

Christian Cyr, CPA, CFP®:

Diversification is one of the most important things, and I'll give you a good example. For years, small cap stocks have overperformed the general stock market right. Smaller companies tend to be more flexible, they tend to grow at faster rates and so, over the long term, small corporations, small businesses that we can invest in, tend to do a lot better over the long term than just a normal stock market right. Coca-cola is growing at 5% a year. Whatever. It's just been here forever. It's not going to do probably as good as a stock, necessarily as the startup company that's going to grow at 50% a year. What are we seeing this year with small caps? What are they doing?

Andrea Brannon, CFA®-IF:

Underperforming.

Christian Cyr, CPA, CFP®:

They're underperforming. So don't just put all your money in small caps just because they've done good in the past 10, 20 years. How about the opposite? Foreign stocks? Foreign investments have been absolutely terrible, literally for the last seven, eight years. What's the top performing equity asset class this year?

Emma Bean, CFA®:

Foreign markets.

Christian Cyr, CPA, CFP®:

Foreign markets. You always have to have a little bit of everything, because you cannot predict the future. I cannot predict the future. Take your emotions out of it and have a balanced diet. Have a well-diversified portfolio. It makes sense. So four things you should really five things you should know about your investment portfolio and your allocations as a retiree. Number one what do you have right now? Number two what should it be? Number three what are the things that make you different from the average person? And number four make sure whatever you do, it's balanced. But I'll just tell you how this works.

Christian Cyr, CPA, CFP®:

So how can you know what your ideal asset allocation is in retirement? The answer lies in the way we build a retirement. People too often 97% of Americans associate retirement financial advisor with investing. A true retirement is so much more broader, so much more comprehensive. There are so many things that we need to put together to make the puzzle which is your retirement look right. And it's when you mix investments with your social security, with your mailbox money, with your taxes, with your long-term care, with your estate planning, then it all comes together. So that's why everyone's answer is different.

Christian Cyr, CPA, CFP®:

The way we approach retirement investment allocation is extremely simple, and I think I've been doing this a long time and it's the way that I feel comfortable with my clients, and it simply works like this.

Christian Cyr, CPA, CFP®:

Let me look at all the pieces you have in the puzzle. They're sitting in a box and I'm going to put them together one by one, and the very first thing we are going to do, the very first thing we are going to do is make sure that the income you will need now, at age 65, for the next 30 years potentially, that the majority of that income is going to come in a fashion that feels safe, that feels stable, perhaps, is guaranteed, and so, whatever investments you do have in the stock market, you shouldn't have to worry about that because, hopefully, 90% of the money you will need over the course of your lifetime we have accounted for. Therefore, de facto, you should not have to worry about the stock market, and we can take a portion of your nest egg, the portion that you're probably never going to spend, unless you buy a huge yacht or do something crazy. You're probably going to end up giving it to who you guys? Who's going to get those investments that we were never going to touch?

Andrea Brannon, CFA®-IF:

The kids Two kids going to touch.

Christian Cyr, CPA, CFP®:

Therefore, we can afford to take a little bit more risk and get a little bit more long-term growth with the portion of your money that's probably never going to be used for anything important. And that's the real, I think, overall best strategy for retirement your asset allocation. Maybe the ideal one for you could be a 60-40, like we said, is the average. Maybe you only want 30% of your money in the stock market. Maybe that's what's best for you, and maybe you want to be crazy and be in an 80% stock portfolio because you can afford to. So everyone's different. But first and foremost, if you're listening to this number one, go figure out what your asset allocation is. If you're not sure, go talk to somebody a financial advisor and find out what it is, and then the next step is what should it be? So that's all for today's podcast. I'm glad you guys watched Brooke the second time. I think was better than the first time. What do you think I'd say? So watched Brooke the second time, I think was better than the first time.

Brooke Fay:

What do you think I'd say so?

Christian Cyr, CPA, CFP®:

yeah, yeah, like how many minutes was this? 19 minutes.

Brooke Fay:

Yeah, not too bad.

Christian Cyr, CPA, CFP®:

Okay, that's great. You guys, thanks for joining us today on Retirement for Life Podcast. We'll see you again in two weeks Signing out Bye-bye.

Outro:

Investment advisory services provided by Sear Financial Inc. Sec-registered investment advisor. All content on this podcast is for information purposes only and should not be considered investment, legal or tax advice. Material presented is believed to be from reliable sources and no representations are made by our firm as to another party's informational accuracy or completeness.

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Christian J. Cyr, CPA, CFP®

Host
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Andrea Brannon

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Emma Bean, CFA

Co-host