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5 Tips: Managing your portfolio after age 59 1/2.

Happy half-birthday, boomers!
July 1, 2005: 1:47 PM EDT
By Gerri Willis, CNN/Money contributing columnist

NEW YORK (CNN/Money) - Today the leading edge of the nation's 76
million boomers will turn 59 1/2 years old. This means they'll be able
to withdraw money from their retirement accounts without the threat of
paying withdrawal penalties.

But don't rush to cash in on your egg nest just yet. In today's five
tips we'll tell you how boomers should start positioning themselves at
the starting gate of retirement.

1. Hands-off
Remember that even though the 10 percent penalty disappears, you still
have to pay income taxes on the lump sum you withdraw.

"The basic rule of thumb is not to touch your retirement money until
you're retired," says financial planner Doug Flynn. "You may not be
penalized," Flynn says, "but you will lose investing power."

If you're still collecting a paycheck and you withdraw $20,000 dollars
from your 401(k) or IRA, that might just bump you up to a higher tax
bracket. And this means you'll have to pay even higher fees. If you
plan on retiring in the next year, it pays to wait until January when
salary is not a factor.

If you really need a stream of cash, think about a home equity loan,
advises Craig Brimhall vice president of Retirement Wealth Strategies
at American Express Financial Advisors.

2. Let your portfolio outlive you
Americans in their early 60s, on average, can expect to live another 20
years past retirement age, according to the National Center for Health
Statistics. The cost of living will probably increase two or three
times during this time.

The most common mistake people make when going into retirement is
underestimating their life expectancy and expenses, according to
Brimhall. If you're too conservative, you may run out of money.
Retirement is an investment that is meant to grow.

So keep invested in the market and take a more balanced approach to
investing. A good mix is stocks, bonds and real estate, he says. Don't
withdraw more than four to five percent a year he advises.

For more guidance in calculating your retirement needs and how you
should consider making withdrawals from your nest egg, go to the
American Express Web site at or the Web site of
mutual-fund company T. Rowe Price.

3. Play catch up
The average boomer didn't start saving for retirement until age 31,
according to financial services company TransAmerica. This year if you
are over 50 years old you can put $4,000 extra pre-tax dollars in your

This catch-up contribution can give you a bit of a boost if you're
getting panicky, says Jules Lichtenstein of AARP.

In 2006, you'll be able to put in an extra $5,000. Not only will you be
making money on your investment, you'll also be reducing the amount of
taxes you'll have to pay.

4. Anticipate the albatross
Healthcare costs continue to rise. Premiums have gone up almost 60
percent in the past five years according to the Kaiser Family
Foundation. And we're not going to see these costs decrease anytime

"Boomers are waking up to being sixty years old. And this is important.
At 50, we joked that we had looked a lot older. But when boomers are
two years away from social security, it's no longer a joke," says

To safeguard against becoming uninsured, check out Family Health Plus
programs that are offered in your state says Chris Miller of the New
York State Department of Aging. To qualify for this program you must
not make above a certain income. If you're a single adult in New York,
you cannot generate more than about $9,570 gross income annually. The
Family Health Plan does operates similarly to Medicare. For more
information call 877-934-7587.

Medicare is a tremendous help in paying for medical costs, according to
Steve Weisbart of the Insurance Information Institute. But remember,
Medicare does not cover long-term care insurance, cautions Amy
Bernstein at the Department of Aging. At 59 1/2 years old, you can get
a better rate on long-term care insurance than you would at 75.

5. Migrate!
Boomers have a lot of value asset in their homes, says Fred Brock,
author of "Live Well on Less than you Think." If you're looking to
retire, the best thing you can do is move to a cheaper part of the
country says Brock.

He says that 60 to 80 percent of boomers considered moving because of
stress factors. "Boomers simply cannot maintain the BMW lifestyles they
were accustomed to," he says.

Places like Bloomington, Indiana or Sante Fe are already seeing
increases in home values because boomers are recognizing how much lower
the cost of living can be. And these college towns offer culture and
activity as well. Check out to compare the living
costs of cities, crime rates and weather statistics.


Gerri Willis is a personal finance editor for CNN Business News and the
host for Open House. E-mail comments to

July 1. For the first time, these Americans will be permitted to

NEW YORK (CNN/Money) - The leading edge of the baby boomer generation,
the largest cohort in American history, will start to turn age 59 on
July 1. For the first time, these Americans will be permitted to
withdraw from their 401(k) and IRA accounts without incurring a 10
percent penalty.

But Bob Carlson, editor of the newsletter, "Retirement Watch" and
author of the book "The New Rules of Retirement," said people should
not view this as an "opportunity to empty out their retirement

Instead, it's time to evaluate the progress they've made in building a
successful retirement plan. They should visualize what level of
lifestyle they want in retirement and then try to estimate what it will

Drew Denning, a vice president in the retirement income management team
of the Principal Financial Group, said Boomers should use the upcoming
milestone as "the perfect time to assess their entire financial

People typically underestimate how much income they'll need in

According to the EBRI/ASEC/Greenwald Retirement Confidence Survey for
2005, 64 percent of workers expect to be able to live on between 50
percent and 85 percent of their pre-retirement income. Most retirees,
however, report that they need at least 85 percent.

One problem is that many workers don't know how much some of their
employee benefits cost until they actually have to pay for them.

Take health insurance. Denning says, "Premiums may go to $700 or $800 a
month after retirement; people may have been paying only $100 or less
when they were working."

Necessary supplements
Most future retirees will have to depend on private resources for a
large portion of their income.

In 1974, 56 percent of retirement income derived from defined benefit
plans and Social Security.

In 2030, according to Denning, only 24 percent will come from those

"I tell people to think of it this way: 76 percent of your income will
not be guaranteed," said Denning.

In essence, unlike their parents, who had employer-funded pensions,
Boomers "will need to make investment decisions to create their own
'paycheck' in retirement," according to Craig Brimhall, vice president
of the Retirement Wealth Strategies at American Express.

Add to that another big key to retirement planning -- flexibility.

Flexibilty is so important because increases in longevity have
stretched the length of time Americans have in retirement. "Our advice
is to plan carefully because your investments may have to last for
decades," said Brimhall. In the 1960s, the average retirement lasted
just five years. Most now project out to 20 or 30 years.

Maintaining flexibility is not easy. Jeff Van Keulen of American
Express said a well-diversified portfolio that includes fixed-income
investments of various maturites, a strategy called laddering, helps,
but his company is not recommending keeping as high a percentage of the
portfolio in bonds as had been recommended in the past.

"When you're planning on a time horizon of 30 years you need a
significant exposure to stocks to keep up," he said.

Among the most common tips from financial planners are:

Maintain a long-term strategy. Try to keep savings in investments.
Tax-deferred, compound growth can keep you ahead of cost of living

Withdraw only 4 percent to 5 percent a year. Taking too much out of
your portfolio, especially early in retirement, can heighten your risk
of running out later. Learn more about drawing down from your 401(k).

Keep some assets liquid. And invest the rest for growth. Rebalance
every 6 to 12 months by cashing in from your best performing assets.

Work your investments hard. Going too conservative carries the risk of
falling behind price increases. Instead, try to maintain a
well-balanced, diversified portfolio with a significant percentage of
it in equities.

Have a cushion. Try to keep something in reserve for unexpected

Consider an annuity. Annuities provide a guarenteed income stream for
life. Use annuity tincome to pay for household expenses. It's like
establishing your own defined-benefit plan. Learn more about annuity

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