During the majority of your life while you are working, retirement can seem so far off that you think of it more as a concept or as a static principle, rather than a living, breathing organism. Once you reach retirement, you realize that it’s by no means static, but is a fluid, changing, dynamic time in your life. This realization has huge ramifications for how you prepare financially for retirement. Rather than having a set retirement portfolio set aside that doesn’t change at all once your working years are over, it’s important to constantly be tweaking and shifting, even as you’re drawing on the money you’ve spent so long saving.
With that in mind, many people wonder how much money they should have in stocks upon their retirement. They know they should diversify and be equipped with stocks in their retirement arsenal, they just don’t know how well-equipped they need to be. The Oxford Club, through their educational arm Investment U, urges toward the fluid, dynamic approach mentioned previously. So, not necessarily having a set amount in stocks, but knowing when and how to use them effectively to maintain the lifestyle you desire for the rest of your life.
One important aspect of this is preparing for stock market cycles of bear and bull markets by having enough other income sources, such as cash and bonds, to be able to ride out a bear market without having to cash out your stocks when their value is low. Once the cycle is complete, typically in about 3 1/2 to 4 years, and stocks reach new highs, you can again draw on your stock portfolio to fund your reserves in preparation for the next bear market. With a small cushion to prepare for unusually long bear markets, a reserve of five-years’ living expenses is recommended. Keeping this in mind before you reach retirement age will help you prepare even more effectively.