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Well Into Retirement and Caught Short on Income
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Kim Cox, a certified financial planner at West Financial Services in McLean, also had concerns with Small's asset allocation. Small should have at least half in equities and half in fixed income, she said. "A portfolio that is providing retirement income should almost always have a fixed-income component where the bonds generate income and can also be used for cash flow when equity markets are down," she said.
With losses in equity markets reaching 30 to 40 percent, now is not the time to sell and move to CDs, she said. "CDs will probably not provide adequate income going forward as Ms. Small needs to be concerned about inflation over her life expectancy, as well as current income needs," Cox said.
Cox recommended that Small sell her international mutual funds because they will probably recover later than domestic markets, then use the proceeds to buy high-quality bonds that have been yielding more than 5 percent recently. "Over time, on market rebounds, she should bring her equity allocation down to no more than 50 percent with the remainder in high-quality individual bonds," she said.
Small's preferred stocks should be fine and continue to provide dividend income, said James S. Ibach, a certified financial planner at Falls Church-based Globus Agency, an office of MetLife.
Ibach also said she should consider using some of the money from the sale of some of her investments to buy a fixed immediate annuity, which would cover her monthly expenses. It works like this: You buy it with a lump sum, and then you begin receiving guaranteed income soon after. But anyone thinking of that option should consult with a professional to fully understand how it works.
There is more Small could do than rebalance her portfolio, the advisers said. She could cut down on expenses -- and yes, consider a part-time job. The benefit of the part-time job is not only the immediate income, but also the added Social Security benefits, Ibach said.
Finally, Ibach said, maybe Small should be more creative in finding new sources of income. Since she lives in a college town, why not think about renting a room to an undergraduate or graduate student?
"I believe with some help, solid professional advice and planning," Ibach said, "Ms. Small will be able to weather this crisis and secure her financial future."
