That $300,000 nest egg will disappear if it's being drained

Dollars & Sense

February 20, 2000|By Liz Pulliam Weston | Liz Pulliam Weston,LOS ANGELES TIMES

I have a portfolio of stocks and mutual funds worth about $300,000, with 95 percent in equities. I am 68, and my wife and I are retired and in good health. We have an income that takes care of all of our needs except for travel and large annual bills, which take about $30,000 from my portfolio each year. I have no 401(k) or IRA plans. Conventional wisdom suggests that a much larger portion of my investments be in bonds or bond funds. Would this be your suggestion too?

You're running a huge risk by having so much of your portfolio in stocks and by drawing out so much so early in your retirement. A bear market, or even a few years of low returns, could mean running out of money well before you run out of life.

Just think what would happen if we experienced another downturn like the one in 1973-1974 and your $300,000 portfolio became $180,000. If you continued withdrawals at your current rate, your portfolio would be exhausted in a decade or so, even if stocks again returned 10 percent a year after a two-year slump. You're likely to live beyond age 78, and that could be right about the time you might need the money for nursing care and medical costs.

You need to change course.

Because you have other income providing you with stability, you can be more aggressive with your portfolio than someone who has no pension or Social Security. Still, few advisers would recommend a portfolio with more than 70 percent stocks for someone your age. A more prudent portfolio might be 60 percent stocks, 30 percent bonds and 10 percent cash, with a withdrawal rate of 6 percent or less. That would mean $18,000 a year instead of $30,000, a pretty substantial drop. Because you are in good health, you might think about a part-time job if you need help supplementing your income.

My mother is approaching the age (70 1/2) when she needs to start withdrawing money from her Individual Retirement Accounts. Lately, she's been approached by several salesmen touting the advantages of investing in public telephone booths. It seems a little fishy, but the returns they're promising sound impressive.

Good investment ideas aren't delivered with a knock on the door or a call during the dinner hour. They don't come via salesmen who have a particular affinity for vulnerable older ladies. These guys are charming and persuasive -- and absolute poison. Tell your mom to give these guys the boot, and encourage her to keep checking investment ideas with you before she proceeds. Knowing that someone is looking out for their prey will often cause these sharks to find an easier target.

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