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Rethinking retirement plans
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September 19, 2001: 5:07 p.m. ET
How to prevent market slide from robbing you of retirement income
By Staff Writer Jeanne Sahadi
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NEW YORK (CNNfn) - The market's ups and downs are getting more vicious each day, causing even the most steel-nerved investors to worry about what comes next. For those in or nearing retirement, that worry is even more pronounced.
Financial planners have always recommended increasing your bonds-and-cash exposure as you approach retirement. But they also advise people who can reasonably expect to live 20 years to 30 years after leaving work to have a significant portion of their portfolio in stocks.
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 STEMMING YOUR LOSSES
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Adjust your expectations
Reduce your spending
Lock in 12-18 months of expenses
Sell winners, not losers
Don't make big moves
Diversify portfolio
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That advice still holds. But following it requires a careful balancing act: You want your portfolio to provide enough income to cover living expenses through the first few years of retirement. But with the Dow and the Nasdaq trading at 1998 prices, you want to be sure that your portfolio is positioned to benefit from a recovery.
Here are specific strategies for re-positioning your portfolio, whether you're already retired, or planning to do so soon.
Just retired or are about to
If you've already built a diversified portfolio, then you're probably in a good position to weather the current downturn. "If you already have 30 percent to 40 percent of your money in bonds, then don't do anything with the equity portion of your portfolio," says CFP Doug Flynn.
But most portfolios have taken a big hit in recent months and will require years to recover. So you might moderate your spending and reduce how much you're planning to draw down from your portfolio annually, advises certified financial planner (CFP) Mark Balasa, noting that portfolio losses at the start of retirement can significantly reduce how long your money lasts.
Fix your mix: Get the right asset allocation
That advice also pertains to new or soon-to-be retirees who don't have enough in fixed income and cash to provide at least 12 months to 18 months of living expenses. If that's your situation, you might also consider working a little longer. "Think long and hard whether you want to retire with 80 percent of what you thought you'd have," says CFP Don Boegel.
But most important, you should reallocate a greater portion of your money into bonds and cash, even if it means you have to sell at a loss. What you don't want to do is lose another 30 percent of your portfolio should stocks continue to decline in the next six months. But, Flynn suggests, "Leave absolutely as much in equities as you can sleep with. ... Be careful about a major reallocation out of (stocks) now."
Retiring in three to five years
If you've got at least three years to retirement, says Flynn, you probably don't need to have more than 20 percent to 40 percent in bonds.
If you're not there yet, readjust your allocation slowly. "Today's not the day to yank it all," Flynn advises. The key is to sell your winners first. If you have a $100,000 portfolio that's all in equities and you need to generate $1,000 a month for living expenses in retirement, pick the best performer and sell $12,000 worth and put it in cash -- that's an entire year of expenses.
Next year, if stocks are still struggling, do the same thing. If stocks have improved, then sell $24,000 worth, Flynn said. That'll give you a two-year time frame during which you can let the equity portion of your portfolio benefit from any upturn in stocks.
Other smart market moves
With the decline in yields, bond investing isn't as attractive as it used to be. So though bonds are still a safe bet, Balasa recommends other high-income investments, such as real estate investment trusts and convertible bonds. Some solid funds include Cohen & Steers Realty Shares (CSRSX: Research, Estimates) , Columbia Real Estate Equity (CREEX: Research, Estimates) , and two offering from Calamos, Convertible (CCVIX: Research, Estimates) and Convertible Growth and Income (CVTRX: down $0.07 to $22.46, Research, Estimates) . 
* Disclaimer
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