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Amid turbulence, retirees urged to stick to long-term plan

Last week's turbulence on Wall Street was enough to give any investor chills. Particularly if you're a Tampa Bay area retiree who counts on investment income to pay the bills. Time to relax. Drastic times, experts say, call for merely minor measures. If you rely on checks from your investments, you've probably already refined your risk tolerance and set a long-term strategy. You've set up a well-diversified portfolio, with securities that grow to hedge against inflation over time, and securities that have a decent rate of return to support you. You're paying attention to the overall earnings of your portfolio, not just the interest and the dividends. So, calm down. You've already prepared for this day. "This economic stall will, too, resolve itself over time," says Bill Sieffert, senior vice president and portfolio manager at Northern Trust in Tampa. "Focus on the long term." If you're still uncomfortable, talk with a financial adviser. And check out these tips for minor adjustments you might make in a rough market. At the least, it might make you feel better.

How to be cautious without melting down

Of all demographic groups, retirees need to be the most careful about slumps in the market, writes Walter Updegrave of Money magazine. But what's the best way to be careful?

Scale back your stock holdings enough to allow for modest growth." At age 65, a rule of thumb is to invest roughly half of your retirement money in stock funds and the remainder in bonds and cash. Then scale back the amount devoted to equities until it reaches 20 to 30 percent of your portfolio in your 80s.

Carefully manage withdrawals from your savings. … If the markets head south early in retirement, you may want to pare back your withdrawals a bit." You may need your investments to support you for more than 30 years. That means protecting it, by drawing no more than 4 to 4.5 percent initially, then increasing the amount annually for inflation. This gives you an 85 to 90 percent chance your money will last. But that's just an estimate — it's no guarantee.

Updegrave's bottom line: The market can be unnerving. "But shifting assets around in a vain attempt to outguess the markets will likely create more problems than it will solve." Stick with your long-term plan, with just minor adjustments. You'll be glad you did.

Source: Money magazine

Amid turbulence, retirees urged to stick to long-term plan 09/16/08 [Last modified: Tuesday, September 16, 2008 9:53am]
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