|Kiplinger's Personal Finance
Vol 55, Issue 11,
Nov 1, 2001, Page(s) 100 (573 words)
by Mary Beth Franklin
Make It Last
RETIREMENT | Diversification is the key
to PROTECT YOUR NEST EGG. By Mary Beth Franklin
Over the past year Tony and Kay
Trischman of Laguna Woods, Cal., have watched their retirement
portfolio shrivel. Once
worth more than $1 million, their nest egg has shrunk by more than 30%.
While they both collect social security benefits, neither Tony, a
retired chemical engineer, nor Kay, a former teacher, has a traditional
pension. They both rolled retirement savings from previous employers
into IRAs and signed up for the T. Rowe Price Retirement Income Manager
program (www.troweprice.com/ric) three years ago to track their
investments and manage withdrawals.
both in their sixties, chose not to accept the Baltimore-based
investment firm’s recommendation to invest about 60% of their assets in
stocks and 40% in bonds and cash. Tony thought that allocation was too
conservative. Instead, he kept the bulk of the couple’s money in stock
mutual funds, with a heavy emphasis on the science-and-technology
sector. Now the Trischmans are rethinking their strategy.
would have been smarter if I had done what they suggested," says Tony.
"But then again the account probably wouldn’t have grown as much as it
did. I just wish we had gotten out sooner. I think I’ll go back to a
more conservative approach. My wife will feel more comfortable, and we
won’t have to watch it all the time."
While the Trischmans have suffered a significant loss, their day-to-day
lifestyle has not been affected so far because they kept about 10% of
their assets in a money-market fund. That’s enough, when added to their
social security benefits, to fund about three years of living expenses.
And it’s in line with what many financial advisers suggest for retirees
so they are not forced to sell stocks in a down market.
"If clients have
the money, we commonly recommend that they park three years’ worth of
living expenses--taxes, trips, vacations, gifts to the kids--in a
money-market fund," says Randolph Shine, a co-founder of Shine
Financial, in Deerfield Beach, Fla. "Then we allocate the investment
side of the portfolio in stock funds, real estate investment trusts and
bonds for the long term." Retirees with pensions or annuities that
cover some or all of their normal expenses need less in a money fund to
cover the gap.
As bonds or CDs
mature, you can use some of the money to replenish the money-market
account and maintain the three-year cushion. Keep the rest invested for
the long term.
"Be patient and stay diversified," says Sharon Rich, a financial
planner with Womoney, in Belmont, Mass. But that doesn’t mean stay
stagnant. You must carefully monitor your portfolio and rebalance
investments if you find that your exposure to stocks is too high.
What if market
losses are making an impact on your budget? There are no easy choices.
Retirees who find themselves in a cash-flow squeeze must either cut
spending or increase income. For example, some retirees are carrying
too much life insurance. If your mortgage is paid off and you don’t
have a taxable estate, you might be able to reduce or eliminate your
life insurance premiums.
Or find another
source of income. Many retirees are working part-time, not only to stay
busy but to supplement their income or pay for discretionary costs such
--Reporter: CHRISTINE PULFREY