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Is a balanced fund still appropriate for my IRA in retirement?

balanced-fund-still-appropriate-for-my-IRAQ: I am 84 years old and my wife is 77. I have a $1 million IRA invested in a balanced indexed mutual fund. Does this seem appropriate?

A: It is impossible to give a definitive answer on the appropriateness of an investment without a detailed examination of your full financial situation -- but it could help to discuss some of the relevant issues you should consider when evaluating how well this kind of investment fits your situation.

Balanced mutual funds and IRAs - what to consider

Answering these two questions may help you determine your course:

  1. Do you have sufficient funds in savings accounts or other liquid assets?
    A key issue is whether you are drawing from your IRA exclusively to meet living expenses or if you have other resources. You are at an age where you can draw freely from your IRA if you wish, though income tax will be due if it is a traditional rather than a Roth IRA.

    Be advised that a balanced fund could have large enough fluctuations in price to impact your ability to draw from it for regular expenses. However, if you also have money outside your IRA, it could act as a buffer against those fluctuations, as long as that other money is invested in stable and liquid vehicles like savings accounts, money market accounts or certificates of deposit.

    In fact, if you have a fairly predictable budget, you could set up a CD ladder to provide periodic liquidity to provide for your regular expenses. This would allow you to leave your longer term investments untouched, except to the extent you are making required minimum distributions.

  2. How are you handling your required minimum distributions (RMDs)?
    Since you are past the age of 70 1/2, you are probably already very familiar with RMDs and should have been taking them for some time.

    A crucial point about RMDs is that having to take them out of the IRA does not mean having to spend those distributions in full. In fact, saving some of the amount you are required to take out of the IRA, if possible, is a good way to preserve retirement resources. While investment returns on this money would no longer be protected from taxes, it could provide a cushion against fluctuations in the remainder of your IRA in future years.

Learn more: A complete guide to IRA accounts


Is a balanced-fund risk profile appropriate for your age?

Balanced funds generally have between 50 percent and 75 percent in stock. In isolation, this might seem like a slightly risky asset allocation for someone your age - but that really depends on your answers to the two questions above.

If you have other, more conservative assets outside of your IRA, and/or you do not need to spend your entire RMD amounts for living expenses, you have some cushion against fluctuations in your balanced fund. This would allow you to maintain a growth-oriented asset allocation later into retirement. The plus side of doing this is that growth investments give you a better chance of staying ahead of inflation.

It sounds as though you have saved well for retirement. Now the task is to continue to invest wisely and budget prudently so you can preserve those resources through retirement.


More resources on retirement planning with CDs:

Compare jumbo IRA CD rates

IRA withdrawal rules: transfer to CD without penalty

Why some retirement dollars are worth more than others

Use our retirement savings calculator

5 moves to optimize your CD ladder


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