How to invest your money in retirement

How to invest your money in retirement

Too often our goals and risk tolerance are in conflict. My view is that how you invest should be driven by your goals, not your risk tolerance. I assume that what you want is the goals you identify. Based on those goals, my job is to come up with the highest probability of success of achieving your goals.

This approach is different from the traditional approach. It is intentionally designed to be thought-provoking. The best way to experience it is to let me guide you where I can put you on a customized path. If you prefer an overview of the approach, I'll try to give it to you here.

How to invest your money in retirement

There is one factor that matters in determining how you invest your money in retirement: how much money you need from your portfolio each year.

Your process should be the one that gives you the highest probability of accomplishing your objectives.

You must:

  1. Find your number
  2. Establish a foundational holding - your base
  3. Update your decisions with cash, other investments, and debt according to your needs


Step 1: Find your number

First, determine what you need from your investments.

Here is how you do it:

  • Determine the annual income you want in retirement.
  • Subtract any Social Security, pension and any other income.
  • The remaining gap is how much you need from your investments.



  1. Desired annual income in retirement: $80,000 / year
  2. Social Security and/or pension: $30,000 / year
  3. Gap: $50,000 / year
    • $50,000 is what you need

For now, don't worry about taxes.


Step 2: Establish a foundational holding - your base

You must establish a foundational holding. Typically this will be for 10x to 30x what you need. In most cases, 20x your annual need is middle of the fairway.

In the example above, the need is $50,000. Therefore, $500,000 to $1,500,000 should be in a foundational holding like the Vanguard Total World Stock Index (ticker symbol VT). In most cases, $1 million is about perfect as a starting place.


Step 3: Update your decisions with cash, debt, and other investments according to your needs.

Once you have a foundational base, you can fine tune around it. Some people retire with more than 20x their need, many people retire with less.

What to do if you have less than 20x your need

You still need your investments to continually build wealth for you.

  1. I recommend you follow my approach prescriptively.
  2. Your decisions with cash and debt matter.
    • You must keep your good debt.
    • You must minimize your cash.
  3. Your decisions with Social Security are critical.
  4. Look at the power of including other assets

You may also want to consider that there may be ways to:

  • Generate some income in retirement (even a little goes a long way)
  • Spend less
  • Live and spend differently in your 70s, 80s and 90s.

What to do if you have more than 20X your need

If you have more than 20x your need, you have a lot of good choices. Keep the foundation in place and then consider:

  1. You should not have debt.
    • Pay down any debt (including good debt) with the excess.
  2. If you still have money to invest (after the foundation and after paying off all of your debt), then your may want to hold the balance in cash or begin to look at other investment choices.



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