Once you’ve covered your needs on a fixed income, you can afford a little excitement.

“My wife and I are 80 and 81 years old.

“Our investments are not used for current expenses; Social security and pensions cover this. We use our investments for things like traveling or, for example, buying our car recently.

“I know the portfolio is risky, but I’ve always been a fan of dividend stocks and thought that if stock prices fall, I’ll still receive dividends until prices recover.

“I feel the need to protect more of the portfolio from the uncertainties ahead and so I would like to hear your suggestions. The entire portfolio is valued at around $375,000 and here it is.

Harold, Florida

My answer:

I like your approach to spending. I don’t like your actions.

It looks like you instinctively found a safe way to spend assets that experts only get after complex analysis.

Here is the basic information about the retirement expenses you have arrived at:

If your fixed expenses are covered by a fixed income, you can manage a lot of risk for the rest of your retirement.

Experts use what is called the 4% rule. It says you can start your retirement by spending 4% of your assets and then increase the dollar amount each year to keep up with inflation. With this formula, they say, you can be pretty sure that you won’t outlive your savings.

And then, since 4% seems rogue, they offer variants that allow you to spend more as long as you have some leeway to reduce in the event of a stock market crash. These variations make you calculate “safeguards” that reduce dollar withdrawals during tough times, but only to a certain extent.

I favor a simpler approach. pass some percentage of assets each year, not a certain dollar amount. This way you can live longer. That seems to be what you are doing.

My percentage formula starts at 4% for a 67 year old and then increases each year by a quarter of a percentage point. At 81, you can spend 7.5%. This means you can spend $28,000 this year from your savings. At 91, you should be spending 10% of what’s left.

You will never run out. You will, of course, have a lot of uncertainty. If the market remains high, you buy a car or go to Europe. If it crashes, you don’t.

But you can live with this uncertainty, because your basic costs are covered by pensions and social security. Your wallet is fun money.

Now onto how it’s invested. More than half is made up of funds: Vanguard Wellesley Income, Vanguard Dividend Growth and Fidelity 500 Index. These are all decent choices. I particularly like the Fidelity one because its fees are minimal (0.015% per year).

Then you have a dozen actions. yuck.

All but one sport very high dividends. Like many retirees, you turn to dividend payers, either for cash flow or for the comfort they provide when the market crashes.

But do dividends really make investing safe? Three of your stocks are tobacco stocks. Is this concentration safe? You have money in a high beta mortgage company (Sachem Capital). Is it safe? You invest in gambling halls (Vici Properties); did you even know that?

The Vanguard Dividend Fund is a better bet. Dividends offer some stability. The heavy blue chips held by Dividend Growth (such as Colgate-Palmolive and Procter & Gamble) are less volatile than large mid-size stocks. Over the past decade, Morningstar reports, the standard deviation for this fund has been 11.8% per year, compared to 13.2% for the Fidelity 500 fund. But its return of 13.5% per year is also inferior. The 500 fund made 14.6%.

As for the money from dividends: You don’t need it. You can get money by selling fund units.

If your wallet is in an IRA, I recommend cleaning it up immediately. Put all of the $375,000 into one fund. For 100% equity exposure, switch your account to Fidelity and use the index fund you already own. For a more moderate roller coaster ride, transfer assets to Vanguard and purchase the Vanguard Balanced Index fund. This index fund mixes stocks and bonds.

If the money is in a taxable account, the transition to a less cluttered portfolio will be a little trickier. You will need to be wary of capital gains tax when selling some of your positions. But there is no tax if you keep your taxable income below $83,350. This figure corresponds in your case to approximately $118,000 of total income (earnings plus dividends plus pensions plus social security).

Another thing. If you’re paying an advisor 1% a year to oversee that portfolio, fire that person. Use the savings to take your grandkids to Disney World.

Do you have a personal finance puzzle that might be worth a look? These may include, for example, lump sum retirement payments, estate planning, employee options or annuities. Send a description to williambaldwinfinance—at—gmail—dot—com. Put “Request” in the subject field. Include a first name and state of residence. Include enough detail to generate useful analysis.

Letters will be edited for clarity and conciseness; only some will be selected; the answers are intended to be educational and are not a substitute for professional advice.

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Should I put all my bond money in TIPS?

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