Investing Your Nest Egg Foolishly Format for printing Reuse/Reprint Managing Your Retirement Introduction Pension Payment Plans Defined Contribution Plans Taking Stock Getting Loot to an IRA Investing Your Nest Egg How Much Can You? Getting the Money Early 70 1/2: The Magic Age Designating Beneficiaries There it was, the notice confirming that the $224,517 from his 401(k) plan and the $210,083 from his company pension had reached his IRA. $434,600. He suppressed a giggle. He thought about taking the money, converting it into one- dollar bills, and rolling around in it. This seemed interesting, but not terribly original. He thought about taking the money, converting it into nickels, dimes, and quarters, and rolling on top of it. He quickly discarded that idea. \"This,\" thought Vespasian, \"takes a little more thinking. There must be something better -- and I don\'t know that rolling around, on, under, or through the money is going to actually make it grow. Not that I\'ve ever really thought about it.\" What irony! His security blanket in retirement had just become his greatest worry. Vespasian knew all that cash could provide him the necessary income to enjoy the rest of his life, but it had to last, too. Short of returning to work, that pot of money was all he had to live on besides Social Security. Therefore, taking undue investment risks just didn\'t seem appropriate. Vespasian knew he didn\'t have the same luxury of time to recover from an economic downturn as he did in his salad years. \"I\'ve gotta do something with this stash besides giggle about it,\" he mused. \"But where should I invest it so it\'s safe? \"And how much can I take each year without ever running out?\" Welcome to the wonderful world of retirement, Fool. These are the two eternal questions posed and faced by all retirees. For time immemorial, the simple answer was to invest retirement proceeds in utilities, preferred stock, REITs, bonds, and other dividend-producing, interest- paying securities. You took the interest and dividends as income for the year and let the principal ride. The emphasis here was on income, not growing the base of the investment. Investing for growth meant taking more risk, and risk was to be avoided at all costs -- or at least so said the Wise retirement advisors who held sway in Americans\' psyches. Times have changed (they always do), and the approach that once seemed so attractive and so sensible no longer holds sway. Companies no longer promising or even attempting to provide any dividend growth, deregulation of the utilities, increasingly volatile bond markets, low interest rates, inflation, and increasing life spans have all reared their ugly heads at one time or another to undermine the security of a \"low-risk, income-only\" investment strategy for retirees. OK, an increasing life span isn\'t exactly an \"ugly head\" -- but it poses a few complications as well as providing additional years to celebrate life\'s many joys. At any rate, man.

1. Investing Your Nest Egg Foolishly Format for printing Reuse/Reprint Managing
Your Retirement Introduction Pension Payment Plans Defined Contribution Plans Taking Stock
Getting Loot to an IRA Investing Your Nest Egg How Much Can You? Getting the Money Early
70 1/2: The Magic Age Designating Beneficiaries There it was, the notice confirming that the
$224,517 from his 401(k) plan and the $210,083 from his company pension had reached his IRA.
$434,600. He suppressed a giggle. He thought about taking the money, converting it into one-
dollar bills, and rolling around in it. This seemed interesting, but not terribly original. He thought
about taking the money, converting it into nickels, dimes, and quarters, and rolling on top of it.
He quickly discarded that idea. "This," thought Vespasian, "takes a little more thinking. There
must be something better -- and I don't know that rolling around, on, under, or through the
money is going to actually make it grow. Not that I've ever really thought about it." What
irony! His security blanket in retirement had just become his greatest worry. Vespasian knew all
that cash could provide him the necessary income to enjoy the rest of his life, but it had to last,
too. Short of returning to work, that pot of money was all he had to live on besides Social
Security. Therefore, taking undue investment risks just didn't seem appropriate. Vespasian knew
he didn't have the same luxury of time to recover from an economic downturn as he did in his
salad years. "I've gotta do something with this stash besides giggle about it," he mused. "But
where should I invest it so it's safe? "And how much can I take each year without ever running
out?" Welcome to the wonderful world of retirement, Fool. These are the two eternal questions
posed and faced by all retirees. For time immemorial, the simple answer was to invest retirement
proceeds in utilities, preferred stock, REITs, bonds, and other dividend-producing, interest-
paying securities. You took the interest and dividends as income for the year and let the principal
ride. The emphasis here was on income, not growing the base of the investment. Investing for
growth meant taking more risk, and risk was to be avoided at all costs -- or at least so said the
Wise retirement advisors who held sway in Americans' psyches. Times have changed (they
always do), and the approach that once seemed so attractive and so sensible no longer holds
sway. Companies no longer promising or even attempting to provide any dividend growth,
deregulation of the utilities, increasingly volatile bond markets, low interest rates, inflation, and
increasing life spans have all reared their ugly heads at one time or another to undermine the
security of a "low-risk, income-only" investment strategy for retirees. OK, an increasing life
span isn't exactly an "ugly head" -- but it poses a few complications as well as providing
additional years to celebrate life's many joys. At any rate, many financial experts believe the
"low-risk, income-only" strategy may pose the ultimate threat to retirees -- running out of
money before you run out of time to spend it. In essence, some retirees are taking the greatest
risk of all -- not taking enough risk with their retirement money. Life expectancies have
increased dramatically over the years. A 62-year-old retiree today can expect to live into her 80s

2. and even her 90s. That means required income must continue for 20 to 35 years, and much
longer for those who retire at earlier ages. While an "income-only" portfolio may produce
desired income in the early retired years, it could fall woefully short in later years. As an
example, a low-risk, all-bond portfolio with an average return of 6% might throw off enough
income for a retiree today. Nevertheless, at a modest inflation rate of 3% per year, every $1,000
produced by that portfolio will only be worth $554 in 20 years. Worse, the principal available
then for reinvestment will be the same as it is today because it didn't grow through the years. As
purchasing power declines, a retiree using such a strategy almost certainly will have to dip into
principal to sustain her lifestyle, and the use of that principal will definitely shorten the life of her
portfolio. Conversely, an all-stock portfolio may produce growth from which one may take
income. Yet stocks can plunge in value overnight, and they can stay down for five years or
longer. To a retiree, that, too, can be a devastating result. So what's the answer? There ain't a
perfect one, Fool, except to live each day as if it were your last. Just chill out and enjoy the fruits
of your life's labors. When the money gives out -- just move in with the kids. After all, they
mooched off you for years, didn't they? Turnabout just seems like fair play -- most of recorded
history shows that the main reason to have lots of children is so they can take care of you in your
old age. Who are you, Mr. Bigshot, to turn your back on millennia of accepted practice? But,
then again -- kids today. They might not even know about all those millennia of recorded
practice. Just in case you might be tempted to mark the "Move In With The Kids" folder with a
big red "Plan B" stamp, there is a solution that might work better. It's called asset allocation.
Asset allocation means part of our investment portfolio should go to each of the three primary
investment markets: Stocks, bonds, and cash. In theory, these markets do not move together. As
one is at a high, another is at a low, and the third is somewhere in between the other two. By
having a portion of our money in all three areas, we minimize our downside risk while achieving
necessary portfolio growth. We and we alone decide how much of our total portfolio we want in
each area, and then we allocate that percentage to each. Periodically, typically once each year,
we see what happened. Because markets are doing their crazy "up and down" thing, we will
find that our original allocation has changed. At that point we rebalance our investments to
restore our desired percentages. That means we sell our winners to replenish our losers. In other
words, we buy low and sell high. Now isn't that a Foolish thought, and yet so Wise, too? (Who
said there weren't any areas of mutual agreement?) The trick is to decide how much to place in
each sector, and that's something every Fool has to decide for herself. No one else can really do
it for you. There just isn't a "right" answer or "one size fits all" solution to this conundrum.
Typical "convention wisdom" held that the way to allocate money was to subtract your age
from 100, and devote that portion to stocks. Therefore, a 50-year-old would have 50% of her
portfolio devoted to stocks. A 70-year-old should only have 30% devoted to stocks. Then, as we

3. know, people started living longer, and the number to subtract from became 110. Perhaps there is
some vague broad-stroke sense to that, but in reality, as retirees we must determine the allocation
that allows us as individuals to sleep well at night while still generating the income and portfolio
growth required for the rest of our lives. A Foolish retirement allocation is really determined no
differently than it is for any other investor at any other age. We seek the mix that fits our risk
tolerance for losing money yet still achieves our objectives. In this case, we want growth and
income. To achieve both, we look at total portfolio return and adjust for risk by controlling the
ratio of stocks within that portfolio
Solution
Investing Your Nest Egg Foolishly Format for printing Reuse/Reprint Managing
Your Retirement Introduction Pension Payment Plans Defined Contribution Plans Taking Stock
Getting Loot to an IRA Investing Your Nest Egg How Much Can You? Getting the Money Early
70 1/2: The Magic Age Designating Beneficiaries There it was, the notice confirming that the
$224,517 from his 401(k) plan and the $210,083 from his company pension had reached his IRA.
$434,600. He suppressed a giggle. He thought about taking the money, converting it into one-
dollar bills, and rolling around in it. This seemed interesting, but not terribly original. He thought
about taking the money, converting it into nickels, dimes, and quarters, and rolling on top of it.
He quickly discarded that idea. "This," thought Vespasian, "takes a little more thinking. There
must be something better -- and I don't know that rolling around, on, under, or through the
money is going to actually make it grow. Not that I've ever really thought about it." What
irony! His security blanket in retirement had just become his greatest worry. Vespasian knew all
that cash could provide him the necessary income to enjoy the rest of his life, but it had to last,
too. Short of returning to work, that pot of money was all he had to live on besides Social
Security. Therefore, taking undue investment risks just didn't seem appropriate. Vespasian knew
he didn't have the same luxury of time to recover from an economic downturn as he did in his
salad years. "I've gotta do something with this stash besides giggle about it," he mused. "But
where should I invest it so it's safe? "And how much can I take each year without ever running
out?" Welcome to the wonderful world of retirement, Fool. These are the two eternal questions
posed and faced by all retirees. For time immemorial, the simple answer was to invest retirement
proceeds in utilities, preferred stock, REITs, bonds, and other dividend-producing, interest-
paying securities. You took the interest and dividends as income for the year and let the principal
ride. The emphasis here was on income, not growing the base of the investment. Investing for
growth meant taking more risk, and risk was to be avoided at all costs -- or at least so said the
Wise retirement advisors who held sway in Americans' psyches. Times have changed (they
always do), and the approach that once seemed so attractive and so sensible no longer holds

4. sway. Companies no longer promising or even attempting to provide any dividend growth,
deregulation of the utilities, increasingly volatile bond markets, low interest rates, inflation, and
increasing life spans have all reared their ugly heads at one time or another to undermine the
security of a "low-risk, income-only" investment strategy for retirees. OK, an increasing life
span isn't exactly an "ugly head" -- but it poses a few complications as well as providing
additional years to celebrate life's many joys. At any rate, many financial experts believe the
"low-risk, income-only" strategy may pose the ultimate threat to retirees -- running out of
money before you run out of time to spend it. In essence, some retirees are taking the greatest
risk of all -- not taking enough risk with their retirement money. Life expectancies have
increased dramatically over the years. A 62-year-old retiree today can expect to live into her 80s
and even her 90s. That means required income must continue for 20 to 35 years, and much
longer for those who retire at earlier ages. While an "income-only" portfolio may produce
desired income in the early retired years, it could fall woefully short in later years. As an
example, a low-risk, all-bond portfolio with an average return of 6% might throw off enough
income for a retiree today. Nevertheless, at a modest inflation rate of 3% per year, every $1,000
produced by that portfolio will only be worth $554 in 20 years. Worse, the principal available
then for reinvestment will be the same as it is today because it didn't grow through the years. As
purchasing power declines, a retiree using such a strategy almost certainly will have to dip into
principal to sustain her lifestyle, and the use of that principal will definitely shorten the life of her
portfolio. Conversely, an all-stock portfolio may produce growth from which one may take
income. Yet stocks can plunge in value overnight, and they can stay down for five years or
longer. To a retiree, that, too, can be a devastating result. So what's the answer? There ain't a
perfect one, Fool, except to live each day as if it were your last. Just chill out and enjoy the fruits
of your life's labors. When the money gives out -- just move in with the kids. After all, they
mooched off you for years, didn't they? Turnabout just seems like fair play -- most of recorded
history shows that the main reason to have lots of children is so they can take care of you in your
old age. Who are you, Mr. Bigshot, to turn your back on millennia of accepted practice? But,
then again -- kids today. They might not even know about all those millennia of recorded
practice. Just in case you might be tempted to mark the "Move In With The Kids" folder with a
big red "Plan B" stamp, there is a solution that might work better. It's called asset allocation.
Asset allocation means part of our investment portfolio should go to each of the three primary
investment markets: Stocks, bonds, and cash. In theory, these markets do not move together. As
one is at a high, another is at a low, and the third is somewhere in between the other two. By
having a portion of our money in all three areas, we minimize our downside risk while achieving
necessary portfolio growth. We and we alone decide how much of our total portfolio we want in
each area, and then we allocate that percentage to each. Periodically, typically once each year,

5. we see what happened. Because markets are doing their crazy "up and down" thing, we will
find that our original allocation has changed. At that point we rebalance our investments to
restore our desired percentages. That means we sell our winners to replenish our losers. In other
words, we buy low and sell high. Now isn't that a Foolish thought, and yet so Wise, too? (Who
said there weren't any areas of mutual agreement?) The trick is to decide how much to place in
each sector, and that's something every Fool has to decide for herself. No one else can really do
it for you. There just isn't a "right" answer or "one size fits all" solution to this conundrum.
Typical "convention wisdom" held that the way to allocate money was to subtract your age
from 100, and devote that portion to stocks. Therefore, a 50-year-old would have 50% of her
portfolio devoted to stocks. A 70-year-old should only have 30% devoted to stocks. Then, as we
know, people started living longer, and the number to subtract from became 110. Perhaps there is
some vague broad-stroke sense to that, but in reality, as retirees we must determine the allocation
that allows us as individuals to sleep well at night while still generating the income and portfolio
growth required for the rest of our lives. A Foolish retirement allocation is really determined no
differently than it is for any other investor at any other age. We seek the mix that fits our risk
tolerance for losing money yet still achieves our objectives. In this case, we want growth and
income. To achieve both, we look at total portfolio return and adjust for risk by controlling the
ratio of stocks within that portfolio