Money Matters: Preparing for Retirement

Ask yourself key questions to reveal how best to structure your investments

I’m 61 years old and still working full time. I’d like to retire in seven years. I have a pretty diverse portfolio, but I’d like to know how I should structure my investment holdings in the current economic environment?

—J.L. Siders
Americus, GA

The lead-up to retirement calls for serious soul searching, especially in times of market turmoil. Ask yourself these questions: What kind of lifestyle do I plan to lead in my golden years? Do I anticipate large healthcare costs? Will my home be paid for? Do I have relatives who will need financial help? This internal inquiry will help you determine not only how much you’ll need to live comfortably in retirement, but will also help you identify your tolerance for market risk. Since you’re seven years from retiring, the mix of stocks, bonds, and cash in your portfolio should be taking a turn toward the conservative. You should avoid higher-risk mutual funds, made up, for instance, of small-cap growth or emerging market investments. Assuming a moderate-to-conservative tolerance for risk, David Hinson, president and CEO of the Wealth Management Network in New York, suggests that his clients in your age range divvy up their 401(k) holdings like so: 50% fixed income (such as bonds), 20% in large-cap U.S. growth companies, another 20% in large-cap U.S. value funds. The final 10% of your holdings should be in cash.

The trick, of course, is not to guesstimate your needs, but use real-world financials. T. Rowe Price’s free retirement income calculator at www.troweprice.com/ric can help. Plug in your investments and anticipated needs, and the calculator determines your monthly spending limit in retirement and the likelihood that your savings will last throughout your post-work life.

This article originally appeared in the January 2009 issue of Black Enterprise magazine.

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