There is no perfect formula for how much money a retiree should have in the stock market vs money market funds. Similarly, there is no way to predict with certainty when selling is wise (ie, if it is the beginning of a bear market) or when it is foolish (just a dip in the market) — We will only know in hindsight.
I have pointed out in recent columns that one thing retirees should keep in mind is that a bear market typically wipes out about 33 percent of the gains from the preceding bull market. And we have seen two bear markets that have wiped out more than 50! Of course, eventually the market comes back — as you can see from the fact that we are currently just a few points from the all-time highs.
BUT, can a retiree “ride out” the loss of money in her investment account, without panicking and selling at the bottom? What if you must sell stocks in order to take your RMD? And remember, that younger people who are still working should love a bear market because it gives them a chance to buy stocks cheaply. But a retiree is no longer contributing to a 40l(k) plan.
With all that in mind, and depending on your overall wealth and risk tolerance,and retirement spending budget — and also keeping in mind that this is already the longest bull market ever — I would think it prudent to cut back on your exposure to stocks. Bonds have their own set of risks — and you could prune that position too. Of course, brokers shouldn’t get compensated for money held in a MM fund. Ask how that works with your advisor. He/she may have a built-in incentive to keep you invested in stocks, because that account is the one on which fees are based. (And by the way, if you do sell some positions, be aware the broker will get her commission on that sale!).
Reac this column: Sell Down to the Sleeping Point!