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Jewish World Review
What you need to know now about retirement
Jane Bennett Clark
You'd think that at age 65 you could stop worrying about building your retirement stash and focus on preserving it. You'd be wrongs
You'd think that at age 65 you could stop worrying about building your retirement stash and focus on preserving it. But with today's longer life expectancies, you need to keep the growth engine running. Financial planners generally recommend that you have 40 percent to 60 percent in stocks at the start of your retirement, with the rest in cash and fixed-income investments to tamp down risk.
How you invest within those parameters can get tricky. Aim for a diversified portfolio that includes U.S. and international stock funds, an emerging-markets stock fund and a dash of real estate and commodities. On the bond side, given the low-interest-rate environment, go with short-term bonds, floating-rate bank loan funds and high-yield bond funds.
As you get further into retirement, gradually reduce risk by shifting to more bonds and cash. Some investors feel comfortable allocating 30 percent to stocks even in their advanced old age; others end up with 10 percent to 15 percent in stocks and the rest in cash and fixed investments.
Making the adjustments yourself can be a bother; instead, consider putting your money in a target-date fund (if you haven't already), which adjusts the mix for you. Be aware that funds have different asset mixes and different timetables for adjusting them, called glide paths. For instance, the Vanguard 2015 fund, aimed at people retiring between 2013 and 2017, invests 50 percent in stocks and 50 percent in bonds that year and moves to 30 percent stocks and 70 percent bonds over seven years. A comparable fund from Fidelity has you start retirement in 2015 with 50 percent in stocks and moves to 20 percent stocks with the rest in bonds and short-term funds over ten to 15 years.
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Another strategy is to carve out part of the money you would otherwise put in bonds to buy an immediate fixed annuity, which delivers a guaranteed income for as long as you live. Low interest rates are dampening the income you can generate with a single-premium immediate annuity -- the meat and potatoes of the annuities world -- but there are ways to boost the payouts, such as laddering or buying a deferred-income annuity.
Smart distribution of your assets is only part of the challenge. You also need to adopt a strategy to make your income last for the rest of your life. Many retirees aim to replace 80 percent of their preretirement income, but it's a good idea to create a budget and test-drive it before you quit your day job. If you can't get by with Social Security, a pension and savings, consider tapping your home equity through a reverse mortgage.
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Jane Bennett Clark is a senior editor at Kiplinger's Personal Finance magazine.
All contents copyright 2013 Kiplinger's Personal Finance Distributed by Tribune Media Services. All rights reserved.