What to Do With Your Money in 2015

By Allan Roth, January 5, 2015 10:04 AM

As we start the new year, the usual suspects are lining up to forecast market trends and tell us what to do with our money. But rather than sifting through the same old implausible predictions of the short-term future, let me suggest some useful advice, compliments of Wall Street Journal columnist Jonathan Clements. I asked Clements to share his picks of the best advice for those near or in retirement from his new book, Money Guide 2015, and here they are.

1. Know your fixed costs. Some expenditures must be paid every month, such as the mortgage, utilities, insurance and groceries. Knowing those costs helps you develop an income strategy to make sure those expenses are covered and you have enough to pay for some discretionary items as well, like vacations.

2. Set up your portfolio with those fixed costs in mind. Many retirees moved out of stocks after the 2008 plunge and missed out on the great recovery. Clements suggests setting your portfolio so you can withstand future plunges by keeping enough cash or high-quality bonds that can be used to live for five years. When markets recover, you can then sell some stocks to replenish the bonds. In addition, I recommend bank certificates of deposits (CDs) as bond alternatives.

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3. Consider longevity insurance. Though none of us knows how long we will live, there are some strategies to increase the probability that our money will last as long as we do. First, in most cases, delay taking Social Security. Life expectancy is increasing and this is the single best longevity insurance you can buy. In addition, Clements goes through some strategies that allow one spouse to collect while the benefits grow, such as “file and suspend.” If you think you need more longevity insurance than Social Security will provide, there are other options, such as buying a so-called deferred-income annuity. For example, a 65-year-old can buy an annuity that pays a fixed income stream beginning at age 85.

4. Be ready to cut spending. In retirement, it’s far easier to cut spending than to safely increase income. Low market returns or high inflation can work against us and, when they do, Clements recommends being ready to cut those discretionary expenses until things improve. This is a powerful lever to making sure we don’t outlive our money.

5. Be happier and live longer. Money may be the stored energy that allows us to do what we want with our lives, but it’s up to us to figure the last part out. Clements notes that we tend to be happier and live longer when we are part of a community, have a network of friends and have a purpose in life.

Other topics in the book include paying for college expenses, saving and understanding financial markets. Clements ends with 31 rules to keep yourself on track in 2015. It’s always hard to separate books with foolish, self-serving personal finance advice from those with useful advice. Money Guide 2015 delivers punchy, straight-talk answers to life’s most pressing financial questions.