Prepare Your Portfolio

Saving for Retirement

Prepare Your Portfolio

How to invest before and during retirement to generate income and growth.

Many preretirees leave their investment asset mix alone until the day they retire and then consider making changes. That proved to be a disastrous strategy for those who planned to retire in 2008 and 2009, as they watched the stock market plunge more than 50% (and mush of their savings along with it).

Here are some guidelines for how to rejigger your investments five years before you retire to protect your income for the first five years in retirement -- and how to position the balance of your portfolio for growth for the next 25 years. This strategy works best for portfolios of $250,000 or more.

For a customized approach, use our calculator determine how much of your savings to consider moving to safer investments five years before retirement.

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Five years before retirement

Step 1: Add up your current savings
List the value of all your retirement accounts


Step 2: See how much it will grow by retirement
Multiply by 1.28 (assumes 5% annual growth

Step 3: List monthly contributions
Include your contributions and any employer match

Step 4: Estimate future value of contributions
Multiply by 68 (assumes 5% annual growth)

Step 5: Project your total savings at retirement
Add the amounts in steps 2 and 4. To estimate how much annual income your projected savings would generate, multiply by 0.05. If that's not enough to supplement your Social Security benefits, see the accompanying article for ways to rescue your retirement.


Step 6: Determine the amount to protect now
Multiply the amount in step 5 by 0.22. This is how much this plan suggests you should transfer now to create income for your first five years of retirement. For example, if you have a $500,000 nest egg, set aside about $100,000 in a safe account that is not exposed to market risk. You can use a five-year CD, stable value fund, or five-year fixed annuity.

When you retire

Purchase a five-year immediate fixed annuity. Use the money you transferred to a fixed account in step 6. This will create an income stream for your first five years of retirement to supplement Social Security and any other retirement income. For example, a 65-year-old-man who used $100,000 to buy a five-year immediate fixed annuity would receive about $1,700 per month. To see how much income you could buy based on your age, gender and amount invested, go to

Transfer 26% of your retirement fund balance to a five-year fixed account, such as a CD, bond or five-year fixed annuity. Aim for a 4% rate of return, without taking any market risk.

Keep remaining funds invested in a 50% stocks/ 40% bonds/ 10% alternative investments (commodities and real estate funds) mix, aiming for a 6% return. Use our tool to find the portfolio that's right for you.

Repeat these three steps every five years. That will ensure a steady stream of retirement income while always keeping a portion of your money invested for growth.