How to Invest After You Retirement

Mutual Funds for Retirees

As for how to invest the rest of your nest egg, many experts believe that retirees can devote more of their savings to stocks than they think. That’s partly because both the bucket and cover-the-basics approaches protect retirees from short-term stock market downturns. And when you have time to wait out declines, you can tolerate more stock market volatility.

The right mix depends on your age, says Catherine Gordon, a strategist at Vanguard Group. At age 66, Gordon says, you can safely invest half of your assets in stocks and the rest in bonds and cash. The stock portion of the portfolio should be divided between domestic and foreign stocks. The bond allocation should include foreign and U.S. debt and be spread among different maturities, though it shouldn’t go overboard on long-term bonds.

A look at Vanguard’s target-date retirement funds—all-in-one funds that become more conservative as you approach the target date—gives you a good idea of the fund giant’s ideal allocations. Vanguard Target Retirement 2015 (symbol VTXVX), which is designed for an investor on the cusp of retirement, had 51% of its portfolio in stocks and 45% in bonds at last report.

Vanguard Target Retirement 2010 (VTENX), which is for investors who are five years into retirement, has 37% of its assets in stocks and the rest in bonds and cash. Vanguard Target Retirement Income Fund (VTINX), which is aimed at clients who are 72 or older, has just 30% in stocks and the rest in bonds and cash.

Some advisers advocate a more-aggressive tack. Nick Ventura, a money manager in Ewing, N.J., suggests that retirees hold more in stocks and less in bonds than the amounts suggested by Vanguard’s target funds. He says that in today’s low-interest-rate environment, retirees should put special emphasis on dividend-paying stocks, including real estate investment trusts. He also thinks investors should keep some money in commodity funds to protect against inflation.

Stanford’s Vernon has a simpler approach. Because he assumes that retirees have covered 100% of their fixed expenses through Social Security, annuities and pensions, he suggests that they invest the rest of their money in a traditional balanced fund, which typically has about two-thirds of its assets in stocks and the rest in bonds. Solid choices include Dodge & Cox Balanced (DODBX), FPA Crescent (FPACX) and Vanguard Wellington (VWELX). Crescent, a member of the Kiplinger 25, recently held a modest 48% of its assets in stocks.

There’s no perfect formula, adds Boston College’s Webb. Ultimately, you have to figure out how much risk you can tolerate and then create a mix of stocks, bonds and cash that feels comfortable. “You may not be totally right,” says Webb, “but you also will never be totally wrong.”

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