Am I investing in the right types of funds to meet long-term growth goals for retirement?

I am 62 years old and planning on retiring at age 70 and collecting Social Security at that time. My equity allocation is under 20 percent. I am planning on adding with dollar cost averaging $10,000-$12,000 per year for the next eight years in to the following: two growth funds, two international funds, one total stock market index fund, and two balanced funds. I have three years worth of living expenses in cash. This would bring my allocation to 25 percent equities. Is this a good plan to meet long-term growth goals for retirement?

Financial Planning, Retirement, Social Security, International / Global, Mutual Funds
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3 days ago

The best way to determine your allocation is to understand exactly what you will need from your portfolio during the first year of your retirement. Household cash flow is the starting point for all of these decisions--it will determine how much a "paycheck" you need from your portfolio in retirement. From there you can estimate how much money you will have saved at retirement based on the calculation above. The rule of thumb is that your annual withdrawal during the first year of retirement should not exceed 4% of your total retirement savings. 

For that reason, it's hard to say whether 20 - 25% equities will be a "good plan". If your retirement is overfunded (you have more money than you'll need), I would say 20-25% exposure to equities is fine becuase there is no reason to take on more risk than necessary. 

If you're around a 4 - 6% withdrawal rate, I would imagine that you'll need a higher allocation to equities. 

If you need to withdraw more than 6% in your first year of retirement, I would imagine that 25% equities is too low. 

Again, need to know more about your income picture, but that's my advice there. 

5 days ago