10:33PM EST November 16. 2012 - MoneyWatch, a personal finance column that runs every Saturday, features a financial planner from the National Association of Personal Financial Advisors answering reader questions about saving, protecting and growing your money. To submit a question, e-mail USA TODAY personal finance reporter Christine Dugas at: cdugas@usatoday.com.
Q: I am 66, and I will be retiring at the end of the year. I have a 403(b) plan with approximately $600,000. My risk tolerance would be moderate growth with a balanced mix. Is there one strategy that would be best for making my retirement savings last?
A: Before deciding on a strategy, you need to be aware of what is generally referred to as either the 4% or 5% rule, which states that a safe annual withdrawal rate from your retirement nest egg is approximately 4% or 5% a year. This rule implies that the lower the withdrawal percentage needed to meet your living expenses, the more likely it is you will be able to enjoy a comfortable retirement and not outlive your financial resources.
For your situation, this rule would translate into being able to safely withdraw somewhere between $24,000 and $30,000 per year from your savings. In this scenario, you should plan to grow your portfolio more like 6% to 7% year, with the extra 2% to 3% growth making up for future inflation.
If these withdrawal amounts seem to be in line with your annual expense requirements, then a portfolio mix of 40% to 50% stock funds and 50% to 60% bond funds should be appropriate for you. You can tweak your allocations with higher or lower allocations to stock funds to either increase your return and payouts (and increase your risk) or lower your returns and payouts (and reduce your risk).
Once you find an allocation that allows you to sleep well at night, then it is not that difficult to find no-load mutual funds to invest in. For the stock fund portion of your portfolio, you can use an SP 500 Index fund or that fund supplemented with several highly rated managed stock funds.
You can use Morningstar.com to find fund ratings. The same basically holds true for bond funds, although I would recommend a smaller allocation to index funds and a higher allocation to managed funds.
With interest rates currently at historic lows, having a skilled manager with a solid long-term record should help you avoid the negative effects that rising interest rates could have on bond fund performance.
Finally, if you are still concerned about not having enough money to last for your lifetime, you can consider investing a portion of your assets in an immediate annuity. The advantage of this would be that you would be guaranteed an income stream for life, regardless of how long you live.
The disadvantages: When you pass away, there would be nothing left for your beneficiaries, and annuity payouts currently are at low levels since interest rates are at historic lows. Also, I would only recommend low-cost annuities that are purchased directly from the provider vs. those bought through insurance salespeople.
Dr. Jeffrey Feldman, NAPFA-Registered Financial Advisor
Rochester Financial Services, Pittsford, N.Y.
Previous Money Watch columns:
Pros and cons of taking a 401(k) loan
Tips on tackling credit card debt
Making life insurance benefits last
Maximizing your Social Security
How to earn more as CD matures
Avoid tax penalties with 401k withdrawals
Are health care funds a smart investment?
Should I put all my assets in 1 brokerage firm?
Retiring home downsizer wonders where to park his money
Hold on to your house a bit, or sell it now?
Source: http://www.news.theusalinks.com/2012/11/17/money-watch-making-your-retirement-nest-egg-last/
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