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Don’t run out of cash before you run out of life

Retirement is a bend in road — not the end of it

SHARE Don’t run out of cash before you run out of life

The good news is that you're likely to live a very long time.

The bad news is that you'll need money every step of the way.

Too many Americans view retirement as the end of the road, rather than a bend in the road. To avoid running out of cash during those years, you must harness your resources carefully.

If you did a bang-up job of investing for your retirement, congratulations are in order. Just don't blow it when retirement actually kicks into gear.

Volatile times such as we've experienced lately underscore how harsh reality can be. Many retirees had too much of their money in the riskiest stock groups, which took a big chunk out of their nest egg when everything collapsed. As a result, a number of retirees have recently become unretired.

Stay in control. Make conservative projections for your investments, such as a return of no more than 8 percent and an inflation figure of no less than 3 percent. Better returns are wonderful when they do occur, but you can't count on them. Your investment choices should also be diversified to spread out risk over a protracted period.

You ultimately are the one who must decide how much risk is appropriate.

"It's not 'one size fits all,' because if you're retiring with $200,000 you can't take too many risks, but if you're retiring with $10 million you can take all kinds of risks," observed Sheldon Jacobs, editor of the No-Load Investor newsletter (P.O. Box 318, One Bridge St., Irvington-on-Hudson, NY 10533-0318). "How wealthy you are and the kind of retirement life-style you want are big factors."

So your money will keep up with inflation, some of it should be put in the stock market — after you take care of the basics. Enough cash should first be set aside in a money-market fund to meet a full year's expenses, with another year's worth placed in certificates of deposit or quality bond funds. That gives you two full years to weather any storms that occur in the markets.

You can't just invest and forget about it. Throughout your retirement you must fine-tune and adjust your holdings. Too many retirees lose track of their investments and the trends in the market.

"If you retire with all growth stocks and the market says value or income stocks are the place to be, you should then do some shifting to value or income," said Hugh Johnson, chief investment officer of First Albany Corp. in Albany, N.Y. "Retirees must manage their portfolios for the best total return at the level of risk that enables them to sleep at night."

While the retiree's portfolio must be defensive, it shouldn't be completely defensive. Too many events can change and leave you behind.

Any adjustments you make should be gradual and with the guidance of a good money manager whom you trust, Johnson believes.

"The traditional portfolio for retirees in their 60s is about 60 percent fixed income and 40 percent equities, a very sound approach," said Marilyn Capelli Dimitroff, a certified financial planner and president of Capelli Financial Services Inc. in Bloomfield Hills, Mich.

However, going beyond investment, the primary difficulty in retirement is budgeting for unexpected items, such as major home repairs, she added. That's why you always need some cash to fall back on.

Fifty percent of Jacobs' well-thought-out retirement portfolio consists of bond funds, 25 percent domestic equity funds, 20 percent money-market funds and 5 percent international funds.

His suggested bond funds include:

Harbor Bond (HABDX), Toledo, Ohio; $903 million in assets; "no load" (no sales charge); $1,000 minimum; average credit quality AA; 1-800-422-1050; 12-month return of 10.63 percent.

TIAA-CREF Bond Plus (TIPBX), Boston; $279 million; no load; $250 minimum; average credit quality A; 1-800-223-1200; 12-month return of 11.59 percent.

Vanguard Short-Term Corp. (VFSTX), Valley Forge, Pa.; $7 billion; no load; $3,000 minimum; average credit quality A; 1-800-662-7447; 12-month total return of 10.46 percent.

His favorite domestic equities funds are:

Meridian Value (MVALX), Larkspur, Calif.; $765 million; no load; $1,000 minimum; 1-800-446-6662; 12-month return of 22.69 percent.

Oakmark Equity & Income I (OAKBX), Chicago; $363 million; no load; $1,000 minimum; 1-800-625-6275; 12-month return of 23.39 percent.

Schwab 1000 (SNXFX), San Francisco; $4.42 billion; no load; $2,500 minimum; 1-800-435-4000; 12-month decline of 21 percent.

The international fund recommended by Jacobs is Longleaf Partners International (LLINX), Memphis; $726 million; no load; $10,000 minimum; 1-800-445-9469; 12-month return of 16.53 percent.

Taxes are another major consideration that can't be overlooked.

"Individual retirement accounts and profit-sharing plans have minimum distribution rules that kick in, and you have to be sure you're complying with them," noted Robert Greisman, tax partner with BDO Seidman LLP in Chicago. "You generally can't take from your accounts without incurring a penalty before age 59 1/2, but by the time you hit age 70 1/2, you must begin taking minimum distributions."

New regulations make taking your minimum distributions much easier, since you can consult a chart to determine the amount to be withdrawn.

Andrew Leckey answers questions only through the column. Address questions to Andrew Leckey, "Successful Investing," 98 Henry St., Dept. 183, Brooklyn, NY 11201, or by e-mail at successinv@aol.com.