 With stock market values battered and the economic outlook grim, older investors can draw on a number of different strategies to keep their nest eggs from being wiped out.
Boomers going from peak earning years to retirement should consider creating a withdrawal plan. As you begin to rely on your investments to meet living expenses, remember that your biggest enemy may be inflation--losing purchasing power. You can dial back the risk and adjust your portfolio to generate more income. Reduce exposure to small and microcap stocks and such volatile areas as emerging markets. But don't shift predominantly to fixed income if that means cashing out of stocks that could recover over the next few years. Retirees often make the mistake of raiding their tax-deferred retirement accounts first. That generates higher taxes that can kick off a vicious cycle: Paying those taxes further erodes the value of a portfolio.  Bottom line: Most affluent investors should wait to withdraw from traditional IRAs and other retirement accounts until the government requires it--after they reach the age of 70.5 years old. And because it is the most valuable of retirement gems--for retirees and for their heirs, who will not have to pay taxes on the money--leave raiding any Roth IRA for last, if at all.
The market's wreckage has created an opening for retirees to convert a traditional IRA to a Roth IRA, which switches a portfolio from tax-deferred savings to tax-free savings. When you convert, you pay taxes based on your tax bracket. With retirement account values down, it's a good time to make the move. Individuals or couples whose adjusted gross income does not exceed $100,000 can do a Roth conversion. After they do that, future withdrawals are tax-free--and there's no need to bother with those vexing required mimimum distributions. Investment advisers prefer total-return portfolios designed for growth--portfolios of stocks and bonds that provide income but that also offer the opportunity for capital appreciation on stock holdings over time. A retiree skims off the dividends and interest, as well as capital gains, and repeats the exercise each year. Obeying those marching orders, however, can be nerve-wracking. For one thing, steadily selling stocks to reap those gains requires a lot of discipline. Maintaining a two-year cash reserve in a total-return portfolion can help give retirees the courage to keep a respectable amount of their portfolio in stocks. And since many financial advisers have, over the years, been raising the recommended amount that older investors should hold in stocks, that staying power is crucial. Source: BUSINESSWEEK, January 5, 2009 | 
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