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Here's how to avoid the 'darkside of retirement'

Nothing changes your investment perspective like retirement, says Gail Buckner, financial planner and spokeswoman for Franklin Templeton Distributors.

By Helen Huntley, Times Personal Finance Editor
Published September 2, 2007

Nothing changes your investment perspective like retirement, says Gail Buckner, financial planner and spokeswoman for Franklin Templeton Distributors.

Suddenly time is the enemy rather than your friend, average long-term returns are meaningless, and market volatility carries with it the potential for disaster. Your lifestyle is on the line.

Buckner calls it the "dark side of retirement," the fear and worry that your savings won't be adequate to see you through. Increasing longevity means the odds are one in four that one member of a 65-year-old couple will live to be 97, she said. And as she points out, "the more time you have, the more money you need."

Buckner was in Tampa recently talking to financial planners about helping their clients manage investments and withdrawals so the money won't run out. Her advice:

Stay diversified. The portfolio that fared best in her analysis was 28 percent U.S. stocks, 12 percent international stocks, 40 percent U.S. bonds and 20 percent cash and CDs. Even with a 6 percent withdrawal rate, it had a 94 percent chance of lasting at least 30 years.

Keep withdrawals level. Many plans are based on increasing withdrawals by the rate of inflation each year. Buckner called that impractical because it requires starting with a very low withdrawal rate. She said young retirees spend more than older ones. If a portfolio fares well, the withdrawal rate can be increased later.

Consider buying a life annuity with part of the portfolio. You'll get more income than you would with CDs or bonds, but the annuity ends at your death with nothing for heirs.

Choose stock funds with low volatility. Of course there is no formula that works for every situation. "Every customer is so uniquely different, you have to start fresh with an open mind," said David Coffin, trust officer for Regions Morgan Keegan Trust in St. Petersburg.

Health plays a big role in whether retirees want to travel or work part time, either of which can have a big effect on finances.

Do-it-yourselfers who want a personal perspective on retirement income can find help on Web sites such as www.troweprice.com under "tools and calculators," look for the "retirement income calculator". For an estimate of your life expectancy, take the quiz at www.livingto100.com.

Your questions

My husband and I have no mortgage. We would like to clear up some credit card debt and do a couple of home improvements. Should we get a mortgage or apply for a line of credit?

That depends on the terms you can get from a lender, which will depend on how much you want to borrow and what your credit rating is. A new first mortgage would have the lowest rate, but many first mortgage lenders will not make small loans.

If your choice is between a lump-sum home equity loan at a fixed rate and a line of credit at a floating rate, pick the lump sum and lock in your rate. A credit line works best when you don't know how much you need to borrow.

Question of the week

How are you managing your income in retirement? Do you have any tips to share with others? Leave a comment on the MoneyTalk blog or send me a letter or e-mail.

Write Helen Huntley at hhuntley@sptimes.com or P.O. Box 1121, St. Petersburg, FL 33731. Go to her MoneyTalk blog (blogs.tampabay.com/money) to read more about investments and personal finance.

[Last modified August 31, 2007, 11:45:44]