How To Be A Stress-Free Retiree

The key to retirement is replacing worry with a solid portfolio. Here's how to structure your investments to carry you through the golden years.

and Benefit Estimate Statement, at any Social Security office or call 800-772-1213. “Review your earnings carefully and report discrepancies immediately,” advises Thurman.

Pensions. While pensions aren’t as widespread as they were in the past, many employers still provide lifelong retirement benefits to longtime employees. “Traditional pensions can be very valuable for workers such as teachers, especially if you stay long-term with one employer” says Bolton.

Gauging how much you will receive from your pension is as easy as asking your employer’s benefits department for an estimate of your pension. While you’re checking, see if delaying retirement for a few months will increase the amount you’ll receive each month.

Employer plans. In addition to traditional pension plans, many employers offer what are known as “defined contribution” plans–such as 401 (k)s. Essentially, they act as tax-free savings account where either you, your employer or both can deposit a certain sum of money. Over time, the account increases with no taxes being paid. There is no guaranteed payoff–you’ll receive whatever amount winds up in these funds. In some plans, such as 401(k)s, you make the investment decisions, while in others including many profit-sharing plans, your employer invests for all participants. Again, checking on your benefits is as easy as calling up your employer’s benefits office.

Investment portfolio. As we’ve already pointed out in other parts of this series, there are ways to build up a nest egg by investing in stocks, bonds, mutual funds and an IRA account. There, your funds grow tax free. And to boot, you’re the portfolio manager, deciding just where assets are allocated and which investments you’re willing to take on.

BRIDGING THE GAP
As you near retirement, you’ll be able to get a fairly accurate id
ea of your income from Social Security and your employer’s pension plan. If that won’t be enough to support you in your golden years–and it probably won’t be–you need to make up any shortfall through work, retirement fund distributions, investment income and other means (perhaps rent from investment property).

Suppose you want $70,000 in retirement income per year and estimate your Social Security benefits and pension income will total around $20,000 per year. The gap, obviously, will be $50,000 per year if you want to achieve a dream retirement. Suppose further that you don’t intend to work, you have no royalties from a best-selling novel and your employer does not provide a profit-sharing plan. The bottom line: you’ll have to fund that $50,000 from your 401(k) plan and your investment portfolio.

How much will you need? William Bengen, a financial planner in El Cajon, California, advises clients to take out about 4% of their retirement plan money the first year. “Assuming they are 65 years old with a portfolio weighted towards stocks, they can increase withdrawals each year to keep pace with inflation and have a 100% probability that their money will last 30 years, based on historical data. If you withdraw more, you run the risk your money won’t last as long as you’re retired.”

Some advisors find 4% a

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