A client referred his mom to us. Ann is recently widowed and has been planning to retire from the job she has held for decades. She wants to downsize her home, live close to her grandchildren, and is now facing her next chapter in life. She relied on the advisor to her company retirement plan for investment guidance. In our initial conversation, we learned she has little experience with investments and told them that she “didn’t want to lose money.” Her allocation was 55% short-term bonds and 45% cash. She is eligible for a spousal Social Security benefit and reluctant to retire, fearing she doesn’t have enough money.
We called the plan administrator to learn that because she’s over 60, she can take an “in-service” withdrawal from her 401(k) to an IRA, without taxes or penalties. This gives her easy access, many more investment choices, and the opportunity for the IRA(s) to be managed.
Next, we split the money into three accounts. We put about 15% in our Liquid Asset Strategy, which seeks to earn a modest yield while protecting the funds for earliest withdrawals. Next, we put about half the total into our Core 60/40 Strategy, intended for growth and income, seeking a good return with lower risk than just stocks, and insulated for about five years by the funds in her Liquid Asset account.
Lastly, we put the remaining 35% into Dimensional Funds, with 80% stock exposure. This fairly exclusive fund family is intended to seek long-term growth, overweighting to those asset classes generating the best returns over long periods – weighted to value over growth, smaller companies, and increased international exposure.
Our layered risk approach allows for clients to be comfortable spending safer short-term money, taking modest risk with investments needed over the next several years, and be more aggressive to capture strong returns with an amount of money that can remain invested long enough to go through market cycles.
Ann has since moved into her new home and is already spending more time with her grandkids. She has the peace of mind to enjoy life knowing that her investments will continue to provide supplemental income with minimal short-term risks.