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Norm, a
65
-year-old corporate finance professional,
says he has already started “the wind-down toward
retirement.” While he spent most of his career as
an executive, he switched to a lower-paying position
in client services for a small firm a few years back.
He says his current job is less stressful, but he’s still
looking forward to retirement within the next few years.
His wife, Peggy, a
61
-year-old math teacher, won’t be
far behind him. The pair would like to enjoy retire-
ment together. Peggy looks forward to being able to
spend more time gardening, and Norm plans to
continue to work part-time, “mostly to keep active.”
Their pensions will supply part of their retirement in-
come as will Norm’s Social Security benefits and
income from his part-time job. The couple will also be
relying on their
$1
.
2
million portfolio for a portion
of their income, and that’s what drove their request for
a makeover. Their portfolio features a number of
Morningstar’s favorite funds, including
Oakmark Inter-
national
OAKIX
and
Fidelity Small Cap Discovery
FSCRX
, but they wonder whether their impending re-
tirements necessitate a new portfolio mix. “We
need to know how to convert our investments into
those that produce more income,” Norm wrote.
The Before Portfolio
Norm and Peggy hold their assets in a few separate
silos. Both have company retirement plans—Peggy’s
a
403
(b) (a defined-contribution plan for educators
and certain not-for-profit workers) and Norm’s a
401
(k).
In addition, they each have
IRA
assets, both Tradi-
tional and Roth. Their taxable portfolio—not included
here—is a small portion of their overall portfolio.
Norm and Peggy’s stock/bond portfolio is about two
thirds stocks, with the rest in bonds and cash. In
addition, Norm’s
IRA
portfolio includes a
$225
,
000
position in
TIAA
-
CREF
Traditional, an annuity.
When I count the annuity as part of Norm and Peggy’s
cash/fixed-income allocation, their portfolio mix
shifts to about
55%
stock with the remainder in cash,
bonds, and the annuity. Peggy’s portion of the
portfolio is more aggressively positioned than Norm’s,
with more than
70%
in stocks.
While their aggregate portfolio’s asset allocation is
reasonable, especially because pensions and
Social Security will supply a healthy percentage of
this couple’s in-retirement cash flows, their port-
folio’s intra-asset-class positioning is idiosyncratic.
Transitioning From Growth to
Retirement Income
Portfolio Matters
|
Christine Benz
Before Portfolio
Holding
Market Value
Weight
Peggy’s 403(b): American Funds AMCAP AMCPX
$113,867
10.23%
Peggy’s 403(b): American Funds Capital World Bond CWBFX
$46,447
4.17%
Peggy’s 403(b): American Funds Capital World Growth&Inc CWGIX
$83,562
7.51%
Peggy’s 403(b): American Funds Income Fund of America AMECX
$25,036
2.25%
Peggy’s 403(b): American Funds IntermTerm Bond Fund AIBAX
$21,020
1.89%
Peggy’s Traditional IRA: Fidelity Puritan FPURX
$96,272
8.65%
Peggy’s Traditional IRA: Fidelity Select Medical Equipment FSMEX
$41,825
3.76%
Peggy’s Roth IRA: Janus Global Life Sciences JAGLX
$16,620
1.49%
Peggy’s Roth IRA: Janus Global Technology JAGTX
$32,406
2.91%
Peggy’s Roth IRA: Janus Flexible Bond Fund JAFIX
$21,198
1.90%
Peggy’s Roth IRA: Cash
$135
0.01%
Norm’s 401(k): BBH Core Select BBTEX
$37,439
3.36%
Norm’s 401(k): Cash
$2,310
0.21%
Norm’s 401(k): Fidelity GNMA FGMNX
$46,771
4.20%
Norm’s 401(k): Fidelity Mega Cap Stock FGRTX
$10,405
0.93%
Norm’s 401(k): Fidelity Select Pharmaceuticals FPHAX
$27,710
2.49%
Norm’s 401(k): Fidelity Small Cap Discovery FSCRX
$8,707
0.78%
Norm’s 401(k): Fidelity Floating Rate FFRHX
$9,798
0.88%
Norm’s 401(k): Fidelity New Markets Income FNMIX
$31,654
2.84%
Norm’s 401(k): iShares Gold Trust IAU
$13,409
1.20%
Norm’s 401(k): Oakmark International OAKIX
$33,202
2.98%
Norm’s 401(k): RiverPark Long/Short Opportunity RLSFX
$32,085
2.88%
Norm’s 401(k): American Balanced ABALX
$11,201
1.01%
Norm’s Traditional IRA: TIAA-CREF Social Choice Equity TICRX
$39,835
3.58%
Norm’s Traditional IRA: TIAA-CREF Traditional Annuity
$225,008
20.21%
Norm’s Roth IRA: Janus Balanced JBALX
$47,929
4.31%
Norm’s Roth IRA: Janus Triton JATTX
$22,985
2.06%
Norm’s Roth IRA: Perkins Mid Cap Value JMCVX
$14,361
1.29%
$1,113,197
100.00%