Investors Chronicle reader David Atkinson is in his early 80s and has been retired for around 20 years. He and his wife (in her late 70s) have fairly small pensions, but have other savings and investments which they use to bring up their income to a reasonable level. He would like some pointers on the contentious issue of investing in your 70s and 80s.
"The general view seems to have been that when approaching retirement and after retiring you should be switching into fixed income or interest-paying investments," he says. Yes, there is a school of thought in which you should switch into fixed income or interest-paying investments when you retire. But you should also question whether you can take on equity risk.
Many people feel very conservative in their attitudes to investing once they retire. But they are also acutely aware that the quality of their lifestyle is influenced by the return they get on their investments. On the one hand you cannot afford to risk losing your capital, but on the other you hope for high returns on your investments. Factor in inflation, which is higher for the elderly than for the rest of the population, and it makes sense to have a healthy dose of equities - say 50 per cent - in your 70s and 30 per cent in your 80s.
But there are other complications of investing in later life. For many people the goal once you hit retirement is to not outlive your assets, which is not always easy to do.
This inevitably brings us to the morbid question of how long you have left to live. Most people don't address their own mortality but you should as it will give you a clearer picture on which to base your investment strategy. So based on average life expectancies our reader's 78-year-old wife has 10 years left to live and he at 82 has seven years (this is taken from the Office for National Statistics Interim Life Tables for England and based on data for the years 2008-2010). As we are usually told that if you have a horizon greater than five years you could have equities, they both probably have a long enough timescale to continue with at least some equity risk.
But they also need to factor in a financial cushion should they live longer than average expectations or need an expensive stay in a residential or nursing care home.
First deal with the essentials: what do you need to live on? Total your monthly expenses such as food, utilities, insurance and multiply by 12 to get the annual amount. Then add any big annual expenses such as holidays.
One simple strategy is to keep as much in cash as you need to live on for the next couple of years and put the rest in equities. A more conservative version of this would be to hold eight years of expenses in cash and bonds.
Another strategy is to just take the income or dividends from your portfolio and leave the capital to your dependants. But it all depends on how big your portfolio is and what your priorities are.
If you have more than enough income from your investments already then ask yourself the question: "Who am I investing for, myself or the next generation?" The answer will be the key to your asset allocation as your 20-year-old grandson should be 100 per cent in equities. If you feel you are investing for future generations - here, depending on the value of your estate, there may be inheritance tax issues on which you may need to get independent advice.
On the other hand, you may want to deplete your savings rather than pass them on, in which case you are in the fortunate position of inventing ways to raise your living standards. Time to book that cruise.
Read more articles on retirement income.