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Stage 3: Retirement
A plan for every stage: Preserving your stash for as long as you live.
October 11, 2005: 7:16 AM EDT
By the editors of MONEY Magazine
Retirement suggested asset allocation
Retirement suggested asset allocation
The dream retirement

AND...
MONEY's best places to retire

NEW YORK (MONEY Magazine) - The big day is finally here! Now you want to concentrate on making your hard-earned pile of cash last the rest of your life.

Goal: Make your money last

As you shift from saving to spending retirement money, your main task is to make sure your savings don't run out too soon. Safety is more important than ever, but your portfolio still needs to earn a decent return to battle inflation.

Challenge: Beat inflation

Over the course of a retirement that can last decades, even modest inflation can hurt badly. A fixed retirement income of $50,000 would fall to only $37,200 in purchasing power after 10 years of 3 percent inflation -- and to just $27,700 after 20 years.

Strategy: Monitor spending

To increase the odds that your assets will last the rest of your life, you must first hold annual withdrawals to 4 to 5 percent of your portfolio, especially early in retirement; second, resist the urge to load up on bonds.

In your sixties, you should keep 55 percent or so of your assets in stocks and scale back to about 30 percent in your eighties. Since 1950, a 55 percent stock to 45 percent bond mix would have earned 10 percent a year.

Smart move: Periodically revisit your withdrawal rate

The amount you can safely withdraw may change as you age and your savings grow or shrink. To re-assess your withdrawal rate, go to the Retirement Income Calculator at www.trowe.com.

Target-date funds T. Rowe Price Retirement 2005 (Research), Vanguard Target Retirement 2015 (Research) and Fidelity Freedom 2015 (Research).  Top of page

The preservation portfolio
Build a mix of index funds or actively managed funds from the seven categories below.
Fund
category
% of
portfolio
Index fund (ticker) Actively managed fund (ticker)
Large-cap 36% Fidelity Spartan 500 Index (FSMKX) Mosaic Investors (MINVX)
Midcap 5% Vanguard Mid Cap Index (VIMSX) Meridian Value (MVALX)
Small-cap 6% Vanguard Small Cap Index (NAESX) Royce Pennsylvania Mutual (PENNX)
International 8% Fidelity Spartan Intl. Index (FSIIX) Vanguard Intl. Growth (VWIGX)
High-grade bond 27% Vanguard Tot. Bond Mkt. Index (VBMFX) Dodge & Cox Income(DODIX)
High-yield bond 8% Payden High Income (PYHRX)* Payden High Income (PYHRX)
Short-term bond 10% Vanguard Short-term Bond Index (VBISX) Vanguard Short-term Bond Index (VBISX)
*Actively-managed fund; no index fund available in this category.

More on MONEY Magazine's special report, The Dream Retirement »».

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