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Show the Salt LakeTribune NATION Sunday,May 5, 1996 PlayingIt TooSafe With Nest Egg Can Be Dangerous BYALBERT B. CRENSHAW $$LEENSHAW THE WASHINGTON POST Saving for retirement is an often-diseussed topic these days, but muchof thetalk treats the actual retirementas if it is the end of the process. If you make your goal, supposedlytherest is cruising. But the reality is often quite different. With life expectancies growing and the pension system shifting more money managemprivate entto the individual, today’s retirees must be prepare continueinvesting and planning for manyyears. d to Even with inflation runningat less than 3 percent, today’s seemingly adequatenest egg can take a ma- jor beating over a period of years. “Mostretirees at 65 havea life expectancy of 20 years, and for a couple, statistically, one of you will reach age 90. Inflation can do an awfullot of ‘damage in 20 or 30 years,” said Ric Edelman of Edelman Financial Services in Fairfax, Va. Suppose you figure you will need $35,000 a year to live comfortably in retirement today. In 20 years, with an annualinflation rate of “only” 2.5 percent, that $35,000 figure would climb to more than $57,000. Can your portfolio, plus Social Security, producea corresponding increase? If not, yourstan- lard ofliving will decline. = The key, Edelman said, is to devise a Portfolio that growsat the sametimeit provides income for living expenses. This isn’t easy, but if the retiree’s assets ‘are adequate to begin with,it can be done. Foronething,the growth does not haveto be abso- lute. A $500,000 portfolio does not have to become $1 million, for example. Growth in this context means that after needed incomeis drawn out, the remaining balance increases enoughso that future withdrawals can be madefor theretiree’s lifetime without exhausting the money It does mean, though, that someriskier investments are required “An all-CD [certificate of deposit] program here isn't a good idea,” said Mary Malgoire of Malgoire DruckerInc., financial planners and investmentadvisers in Bethesda, Md. “I don’t believe that anybody can ignore growth.” Thefirst step, Malgoiresaid, is to evaluate your currentsituation. “Figure out your cash flow and see if you're spending within your means.” These are routine day-to-day living costs, not extraordinary items. “Are you covering your expenses with your in- come?If you are, then youhavea little moreflexibility with respect to your investmentplan.” But checkalso tosee if any of your current income will stop, she said. Are you getting alimony,child support or anything else that is scheduled to end at some point? If so, your other income will have to makeupfor it later on. A lucky minority, of course, likely already know thattheir currentportfolio is large enough so that, even invested cautiously, it not only covers their ex- penses but growsnicely. This is the moment when these folks realize that their lifetimeofsacrifice and saving really did pay off. al And of course, there are always taxes, which can wipe out your gains. For those who need growth, experts advise a mix of high-quality stocks, high-quality corporate bonds. government bonds anda cash reserve. Thereare other investment categories, of course. ranging from limited partnerships to precious metals to collectibles to real estate. These can be quite profitable, but typically entail much more risk and are suitable only for the most sophisticated investors. High-quality stocks, generally those ofbig, profitable companies, typically pay dividends and grow at least as well as the overall economyover the long haul. They are not immuneto the short-term ups and downs of the market, though. In fact, thereis no escaping risk. What's important is to understand the kindsofrisks that are out there andtotry to diversify your investments to minimize the impact of an adverse development. Everybody knows that stock prices can fall, but some of the otherrisks are not so obvious. CDs, which are generally government-guaranteed to return your money plusinterest, can be subtly eroded by inflation. Treasury securities are similar. Corporate bonds, which generally pay a higher yield than CDs, can default. They also can lose value if interest ratesrise (this is called interest-rate risk, although it only affects investors who wish to sell their bonds). Foreign investment faces currency risk, when changesin the valueof the dollar or other currencies cut your return when you convert your investment back into dollars. Retirees should consider buying individual stocks and bonds only if they have some knowledge ofin- vestments and the time and willpower to track them closely. Stocks are not an investment you can forget Onthe other hand, managinga portfolio personal- ly can be fun and rewarding. After all, no one has your interest as much at heart as you do. For those not willing or able to manage stocks and bondson their own, mutualfunds offer a cheap way to employ a professional to choose stocks and bonds for you. They also providethe diversification advisers recommend. Choosing the right fund takes someresearch, but one from a reputable companyand with a good longterm record can usually be relied on to turn in decent performance year in and year out. You can assemble your own portfolio, allocating portions of your money among,say,a large company growth fund(stocks) or a balanced (stock and bond) fund andall-bond funds. Or you can use the growing number of “asset allocation” funds that aim to do this for you. You don't need a brokerto invest in mutualfunds. Manyofthe largest and best-known fund operators sell shares directly by mail As time passes and you find your portfolio doing well and yourself becoming more comfortable with investing, you may want to put a small portion of money into a small companystock fund or even an internationalone. “The goalis to create a conservative portfolio that generates stable yet consistent returns,” Edelman said. “This kind of portfolio is really lower in risk than a portfolio with CDs and Treasury securities.” eS 24 and Cottonwood only. 4 Timberland?loafer with tassel, $80. Fashion Shoes 5 Westbend® breadmaker with bread mix, 269.99. Small Appliances ister with wood lid, $19; salad plate, $19; pitcher, $55; bowl, $23; dinnerplate, $26. China 6 Music box with rose cameo, $42. 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