(PUB) Investing 2016

16

Transitioning From Growth to Retirement Income Portfolio Matters | Christine Benz

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.

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.

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%