Q My wife and I are about two years from retirement. Both of us will have pension and Social Security checks coming in upon retirement. We have most of our investments in large-cap mutual funds, some bond funds, IRAs in mostly large-cap funds, and a small number of stocks. How do you go about devising a plan for withdrawal of money from investments to supplement the pensions and Social Security?
A "First, determine how much income you will need to supplement your pensions and Social Security," says Ric Edelman, a financial planner who heads up Edelman Financial Services in Fairfax, Va. "That will show you the rate of return you will need to produce that specific amount."
If, for example, you only need a 4 percent return, Mr. Edelman says you can safely use conservative investments, such as bank CDs, Treasury bills, etc. "If you need 20 percent, you will have to go with more aggressive investments, such as stocks."
In putting together your plan, "don't be afraid to take out some principal," says Edelman. "Just make certain you don't deplete your principal."
If you do take out principle, tap into your taxable investments first, since they will have the lowest tax liabilities. Save your tax-deferred accounts for last, since they have the highest tax liabilities, he says.
Q In addition to other long-term savings strategies, I participate in a payroll deduction that invests in US Savings Bonds. Recently, it was recommended to me that I switch from the Series EE to Series I Savings Bonds, which are purchased at face value ($100 buys a $100 bond). Yet there doesn't seem to be much information out there about these bonds. Is switching a good move?
D.D., Eatontown, N.J.
A "My own feeling is that Savings Bonds are best for more-conservative investors," says David Bendix, who heads up Bendix Financial Group, Uniondale, N.Y.
But comparing I bonds to EE bonds is an easy choice, he adds. The I Bonds (which carry an inflation hedge in addition to a basic interest rate) currently earn 7.49 percent. That beats the EE bonds, which currently earn 5.73 percent. So switching is a "good move," says Mr. Bendix.
To learn more about both EE and I bonds, check out the US Treasury Web site (www.publicdebt.treas.gov), or call 800-US BONDS.
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