Positioning
Your Portfolio for Good Times and Bad
During the
1990s, investors witnessed the longest period of economic prosperity in U.S.
history. But after a full 10 years of growth, the nation eventually cycled back
to a period of economic decline.1
The effects
of the business cycle and market fluctuations are obviously outside of your
control. But there are several powerful strategies you can use to help protect
and manage your retirement portfolio in any economic climate.
An appropriate asset allocation — along with a thoughtful schedule for
retirement plan withdrawals and long-term-care insurance — weaves together a
financial strategy that may help your savings last a lifetime.
Asset
Allocation Review
Are your funds distributed appropriately among asset classes such as stocks,
bonds, cash, and real estate? Your risk tolerance, target retirement date, and
overall financial situation should all be taken into consideration.
Allocations generally become more conservative as retirement approaches. But
even retirees may want to earmark a portion of their portfolio for growth
investments, such as equities, in order to safeguard it from the potential
effects of inflation.2
Plan
Withdrawals Carefully
When it comes time to create an income stream from your portfolio, remember that
there are regulations governing withdrawals from tax-advantaged retirement plans
such as traditional IRAs, 401(k)s, and 403(b)s.3
Although you must begin taking required minimum distributions (RMDs) by age
701/2 or face a stiff penalty, new rules simplify how RMDs are calculated. If
you have a pension or other sources of income, you may be able to withdraw less,
ease your tax burden, and leave more of your retirement fund intact so it can
continue to grow tax deferred.
Ensure
Health-Care Options
The cost of nursing-home stays and home health care has risen dramatically, but
many retirees will someday require long-term care for an injury or chronic
illness. A long-term-care insurance policy may help protect you from a dangerous
cash drain during your retirement years.
You may need help implementing these strategies for your specific situation.
Twenty years or more down the road, you will be glad you were proactive about
preserving your retirement funds.
1) National Bureau of
Economic Research, November 26, 2001
2) The return and principal value of stocks fluctuate with changes in market
conditions. Shares, when sold, may be worth more or less than their original
cost. Investments seeking to achieve higher returns also involve a higher degree
of risk.
3) Distributions from traditional IRAs, 401(k) plans, and most other
tax-advantaged retirement plans are taxed as ordinary income and, if taken prior
to reaching age 591/2, may be subject to an additional 10 percent federal tax
penalty.
©
2002 Emerald Publications
