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Should I change my asset allocation strategy?

I am approaching 50 years old, single, and have about $2,000,000 in total assets ($1,000,000 in a 401(k), $500,000 in cash, and $500,000 in stocks). I don't own a home but plan on buying one within the next couple of years. My monthly expenses are about $10,000 but if needed I could cut down to about $7,000. I have no debt. I am employed in a good position. Given all of this information, how well-positioned am I for the future? Should I be doing anything different with my asset allocation strategy?

Financial Planning, 401(k), Asset Allocation, Real Estate
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May 2018

Congratulations!  You are well ahead of the curve for retirement as far as total assets.  But, it would benefit you to sit down with a CFP® and review your income, expenses, and asset allocation.  Whoever you sit down with will review the holdings in your 401(k) and look at which stocks you own.  This will enable them to make sure you are properly diversified.  They should also look at the yield you are earning on your cash.  The next step will be to assess your risk tolerance, time horizon, and goals.  With this information, they will be able to align your investment allocations more effectively.  

That is great news that you have no debt.  It would be helpful to know your gross monthly income.  That will be a factor in determining how well-positioned you are for the future.  It is also good to hear that you could cut your expenses down to $7,000.  You will need to dial in your current expenses as that will help you estimate your expenses in retirement.  Typically, you can estimate your retirement expenses to be 80% of your current expenses. 

One thing to consider for retirement is the ratio of your expenses to your total assets.  In retirement, a 4% drawdown is usually a pretty safe assumption.  Therefore, if you have $2,000,000 in assets at retirement, you could, theoretically, withdraw $80,000 per year.  Currently, you are spending about $120,000 per year.  Therefore, you might benefit from reducing your expenses to about $6,500 per month (if possible) in retirement.    

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