Retiring in Austin

The 60/40 portfolio—60 percent stocks, 40 percent bonds—has long been a staple of retirement planning. But for those retiring in Austin, Texas, this strategy may no longer be enough.

Rising Costs in Austin

Austin has seen a rapid rise in housing prices, property taxes, and everyday living expenses. Retirees who once expected a moderate cost of living may now face financial pressures that traditional portfolios may struggle to cover.

Increased Correlation in High Inflation Environments

The bond portion of a 60/40 portfolio was designed to offer diversification and stability. However, in a higher inflation environment, stocks and bonds may move in tandem more often than investors expect. 2022 is a prime example, with inflation taking off and interest rates rising to stem the tide, both stocks and bonds finished the year down more than 10%1. In a high-cost city like Austin, years like this can put added strain on portfolios and increases the risk of outliving retirement savings.

Market Volatility Adds More Risk

While equities can provide growth, they also can bring volatility. Without strong performance from bonds to balance things out, retirees may be exposed to more risk than expected.

A Flexible Approach Is Key

Instead of sticking to the 60/40 model, Austin retirees may need a more customized strategy. This could include a higher allocation to alternative investments, such as REITs, real asset funds (gold, silver, etc.), and structured notes and CDs. Additionally, a healthy cash buffer can help to weather market downturns. Planning for taxes and inflation is also essential.

Conclusion

The 60/40 portfolio still works for some, but it may not suit the realities of retiring in Austin today. A flexible, personalized financial plan may be more likely to meet the financial demands of this fast-changing city.