Don't Run Out of Retirement Funds!

Nothing frightens a retiree more than the possibility of outliving retirement money. And people are living longer.

Almost everyone can look forward to a longer and healthier life than his or her forebears. The life expectancy of an individual who retires at age 65 is 20 years. That's an average—so add another eight to 10 years to make sure you don't run out of money.

Over a lengthy retirement, inflation will seriously erode your purchasing power. Will your resources be sufficient to pay steadily rising prices over a long retirement? Let's look at strategies that will help you increase income, cut taxes, lessen risks and hedge against inflation.

Diversify Your Investments

You want to raise your investment income without sacrificing safety. Start by allocating your money through a combination of cash equivalents, bonds and stocks, or their mutual fund counterparts.

You should probably keep at least 10 percent in cash equivalents such as money market funds, Treasury Bills and certificates of deposit due in a year or less. Then, if you're a conservative investor, you might hold 60 percent in bonds and 30 percent in stocks.

Or, if you're more aggressive, you could do the opposite: put 30 percent in bonds and 60 percent in stocks, perhaps gradually scaling back on stocks as you get older.

Within each classification, spread your money among various market sectors and securities. Different types of investments tend to move in different cycles, so diversify among growth stocks, value stocks and income stocks. And don't put all your money in a single industry, such as utilities, auto stocks or pharmaceuticals.

To ensure that you have enough cash to supplement your income, keep enough money in cash equivalents and short-term bonds so that you can ride out a bear market for two to four years without having to sell stocks at a low ebb.

Shelter Tax-Deferred Funds as Long as You Can

The longer you can defer taking retirement distributions from qualified retirement plans, the greater will be their tax-free buildup. To cover your living expenses in the meantime, first use investment income, Social Security benefits, pension and annuity payments, and any part-time earnings.

If income sources don't fully cover your expenses, you'll need to slowly draw from your principal, but do so in this order: taxable investments first (minimizing net realized capital gains), followed by tax-free investments and nonqualified tax-deferred savings.

Finally, IRAs, Keoghs and other qualified retirement funds should be used only after all other investment types have been completely consumed.

Make Sure Your Money Lasts

To stretch your retirement income safely, get help from qualified professionals. Just ask us how a gift plan can maximize your resources. For more information, please contact Jackie Peterson at 507-933-7543 or jpeters9@gustavus.edu.

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