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How To Handle Your Mutual Funds When You Retire

- Alan Lavine and Gail Liberman

What should you do with your mutual fund or other investments when you retire?

Most likely, you will be tapping your savings and retirement savings accounts for income to live on. But you still need your money to grow. The reason: The cost of everything keeps going up. So it is important to make sure that a dollar today will buy the same amount of goods and services several years from now.

Here are steps to consider. ye Determine how much you need annually to meet your living expenses and to keep your investment growing.ye Decide how much of your stash you can afford to expose to market volatility versus how much you need as a safe source of lifetime income.ye Evaluate risks to your retirement income. These include inflation, the risk of losses in stock and bond investments and the risk that you'll outlive your money.

This all can get complicated. So it doesn't hurt to check in with an experienced financial planner for help. You can expect to pay a fee-only financial planner about the same as you would pay a lawyer or accountant. Expect financial planners who don't charge fees to charge commissions on your investments and insurance. Some even charge a combination of fees and commissions.

Once you have a clear picture of how much periodic income you can expect to receive, how safe your investments are and how long you can expect to live, you can make better decisions.

Here are some options:

  • You can arrange to take systematic withdrawals from your mutual funds and variable annuities. This means withdrawing income monthly. As a rule of thumb, you can take about 4 percent annually out of your stock fund investments, and still have it continue to grow.

  • Money in an Individual Retirement Arrangement must be withdrawn based on your life expectancy. So if you have 20 years to live, you must withdraw 5 percent of your IRA stash in the first year. By year ten, 50 percent of you IRA money will have been withdrawn. Because more money is taken out of your IRA each year, you must be careful not to over invest in stocks. Research by T. Rowe Price, a Baltimore-based mutual fund company, says the best idea is to keep 50 percent of your money in stocks and 50 percent in bonds. That way, your money should grow in value, but you won't lose as much when the stock market declines. With this mix, there is little risk long term that you will outlive your investments.

  • You also can tap the cash value in your life insurance for income when you retire. Keep in mind that your death benefits will be reduced by the amount of your policy loans and accumulated interest.

  • Look to immediate annuities for lifetime income for you and your spouse. How much you get depends on your age, the amount invested and whether you want your spouse to continue getting income for as long as he or she lives. Insurance companies like MetLife, Genworth Financial and Mass Mutual have come out with programs that make it particularly easy to get lifetime income to start at a specific age. Their investments are similar to personal pension plans. You invest for a specific period, then you and your spouse can get income for as long as you both live.

For example, assume an employee age 55 decides he or she wants income payments to start at age 85: The employee could invest $25,000 in MetLife's Retirement Income Insurance program. At age 85, the individual should get a guaranteed $22,000 annually in income.

Meanwhile, a person age 55 could invest $100,000 in Genworth Financial's "Retirement Answers" and get no less than $798.93 monthly at age 65 for the rest of his or her life or for 20 years, whichever is greater. Beware that monthly payments are apt to be lower if you include your spouse. Also, whenever you invest in any kind of an annuity, your guarantee is only as strong as the insurance company that stands behind it.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).

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