Smart Portfolio Moves For Your Retirement Years


For most of your working years, your investment strategy, by and large, has probably revolved around achieving sufficient growth to help you meet your long-term goals, such as college for your kids and a comfortable retirement.

But once you have retired, you can't just sit back and put your investment portfolio on "autopilot."

What types of portfolio moves should you make as a retiree? Here are a few possibilities:

  • Generate your own paycheck. When you're retired, you can collect Social Security and receive distributions from your 401(k) and IRA.

But you'll also probably need to generate some income from your investment portfolio. Consequently, you'll need to own the appropriate mix of investments, including stocks that have the potential to pay dividends, bonds and certificates of deposit (CDs).

  • Protect against inflation. Even if you use some of your investments to provide an income stream, you can't ignore the need for growth -- because you'll have to contend with inflation.

In other words, if you need $75,000 a year to retire comfortably now, you'll need about $150,000 per year in 25 years to maintain your standard of living.

To fight inflation, then, you will need at least some exposure to stocks, which offer the potential to help you keep pace with inflation. While it's true that by investing in stocks, you can lose some, or all, of your principal, you may be able to reduce your risk level by buying quality stocks and holding them for the long term. You can also help protect yourself against inflation through other investments. Your financial adviser can help you choose the ones that are appropriate for your needs.

  • eave a legacy. As you may know, the estate tax laws are in flux. In 2008, the estate tax exemption amount -- the amount you can pass to your heirs free of estate taxes -- is $2 million.

This figure rises to $3.5 million in 2009. Then in 2010, the estate tax disappears -- for one year only. And unless Congress changes the laws before then, in 2011 the exemption amount will revert to $1 million, with a maximum estate tax rate of 55 percent.

How can you help your family cope with a potential estate tax burden?

You can make some "tactical" moves, such as rolling your 401(k) into an IRA, which, when passed on to your heirs, could be "stretched" for years to reduce the tax bite. You can also reduce the size of your taxable estate by making gifts to family members and charitable organizations.

Clearly, there are many portfolio considerations for retirees. So when you're nearing retirement, start preparing. By making the right moves, you can help make your "golden years" considerably brighter.

Scott Flake is a licensed financial adviser with the firm of Edward Jones. He hosts a weekly informal investment discussion on Tuesdays at 10 a.m. at his office at 411 S. Beeline Highway, Suite B. For more information, call him at (928) 468-1470.

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