People close to retirement need more sophisticated planning

hardest things about advising clients in their 50s is getting them to take on more risk to achieve their financial goals. “The biggest risk is running out of money,” Grady, the American Express financial planner, says, “because inflation and taxes are the biggest killers of our assets.”

Darrell knows a single bet on one stock would be highly risky. But she can’t help but feel the need to play some serious catch-up. “I wish I would’ve started saving earlier,” she admits.
“But I guess it’s better late than never.”

When it comes to investing in stocks, financial planners say that people in their 50s and 60s should stick with well-known, blue-chips like General Electric (NYSE: GE), AT&T (NYSE: T), and IBM (NYSE: IBM). Experts also suggest people in their 50s buy bonds. You can purchase bond mutual funds to spread around your risk, funds like Montgomery Short-Duration Bond (Nasdaq: MNSGX), Strong Short-Term Municipal Bond (Nasdaq: STSMX), and Dupree Intermediate Government Bond (Nasdaq: DPIGX). Some financial gurus recommend tax-exempt funds, for example (see “In This Corner,” this issue).

Vernon Lee, a financial planner and principal at Lee Investment Consulting in Raleigh, North Carolina, says it’s actually not uncommon for people in their 50s who are contemplating retirement to still be struggling with making ends meet.

“Most of our clients are at the stage where they’re having some cash-flow concerns,” he says.

Lee counsels individuals on everything from cash-flow management to estate and tax planning. According to Lee, one pitfall is that people often deceive
themselves into thinking they’re in a better financial position than they really are.

“They may have $500,000 of assets, but what’s more important is the composition of those assets-90% may be tied up in their home,” Lee says. It’s important for pre-retirees to have a fairly balanced amount of liquid assets, the planner says.

An emergency fund is a must-have, he says. It should contain anywhere from three to six months’ worth of living expenses. “I recommend a tax-exempt money market mutual fund,” he says.

When looking at a person’s risk-management profile, Lee also likes to make sure that 50-somethings are properly insured. He says those who are single with no dependents, or two-wage-earner couples with no kids, don’t necessarily need life insurance.

But the one product people tend to forget, he says, is disability insurance. “Even if you have an investment portfolio, if you’re disabled, that can wipe out your savings pretty quickly,” Lee says. He adds that entrepreneurs, small business

owners and independent contractors, in particular, need to have disability insurance, a realm he calls “one of the more neglected areas” of financial planning.

Because individuals in their 50s have a relatively short time before retirement, now is definitely the time, if you haven’t already done so, to map out a detailed retirement plan.

Lee says you should have a good idea of what kind of lifestyle you’d like to enjoy in retirement. Will you take numerous vacations? Will you stay in your present home, or trade down to a smaller property?

People age 50

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