Sunset years

If you are approaching your retirement years, should you get out of the stock market? Answering this question is a chapter titled ‘How much in risky stocks versus safe cash?' in ‘The 7 Most Important Equations for Your Retirement' by Moshe A. Milevsky (www.wiley.com). The author begins by stating that if you are risk averse you should not let the favourable probabilities distract you from your fears.

“Although there might be only a 35 per cent chance that stocks earn less than the cash in your low-yielding bank account, if something goes wrong early in retirement – as you're withdrawing money to live off – you might not be able to recover.”

Another advice in the book, to those who are still working and who have the flexibility to delay their retirement by a few years, is to create more human capital, that is, your income-earning ability. “The fact you can work and generate income from your labour is clearly an asset of sorts. Think of a small gold mine or an oil well. Each day only a little bit of gold or oil can be extracted and sold – perhaps generating a few thousand dollars of profit per day – but the value of the mine or well can be worth millions of dollars in the open market.” By going to school, college and university you are effectively investing time and money to create more human capital for yourself, Milevsky adds. He cites the work of researchers such as Gary Becker who have computed how much an extra year of education can impact your earnings profile over your life. “Evidently, the rate of return from investing in education is between 8 per cent and 15 per cent, depending on your field and major. Some careers are obviously worth much more than others…”

Important insights for the sunset years.

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