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Hi jacquelinajohns,

There are many strategies for generating income in retirement.

For many conservative investors, the old strategy was to own a fairly large percentage of bonds, as much as 50 to 70%; that seems high to me. Bonds don't beat inflation and they can have serious risk too. Buying long term bonds (10 to 30 years) can expose you to considerable interest rate risk. If inflation heats up you can loose your shirt.

At the other extreme, some investors like to have all their money in stocks. For decades the favorites were gas, electric, and telephone stocks. They paid high dividends and were relatively stable in price. Utility stocks have become more risky in recent years, dividends have fallen and monopoly protection has evaporated, not to mention that consumers' advocate groups have erroded government protections.

Many retirees have been lulled by the booming stock market into investing 100% in more aggressive growth stocks. That's very risky. Markets can slump for 3 to 5 years. You might have to sell stocks far below your purchase price. That can errode your capital very quickly. You want to maximize your stock investments, but you also want to ensure you can out-last a slump.

Here's my approach. I keep enough money invested in CD's and bonds to cover my cash flow needs for the next 5 years. The rest goes into stocks--S&P500 index funds, high dividend large caps, and momentum growht stocks. The bond and CD money is structured in a ladder--roughly one fifth of the bonds & CD's mature each year. I own no bond funds because they do not guarantee that cash will be available on a specific maturity date.

Here's an example of a $1,000,000 portfolio. The object is to withdraw 4% each year for living expenses and to have that amount appreciate as much as possible to make up for inflation.

Stocks 86.0% $ 860,000
MMFund 2.8% 28,000
Bonds & CDs 1/2001 2.8% 28,000
Bonds & CDs 1/2002 2.8% 28,000
Bonds & CDs 1/2003 2.8% 28,000
Bonds & CDs 1/2004 2.8% 28,000
Total 100.0% $1,000,000
Stock Dividends 1.5% $ 12,900
Bond, CD, MMF Interest 6.5% 9,100
Money Market fund 28,000
Total Cash Flow 100.0% $ 50,000

Let's say the market is good this year and stocks appreciate 10%. You make $86,000 in stocks, and spend you entire MMF of $28,000; that leaves you with a total gain of $58,000. Your 2001 bond matures and you move that into a money market fund. Then you sell $29,624 worth of stocks (2.8% of $1,058,000) and buy a 1/2005 CD or Bond.

If the market is down, you don't sell stock, you wait. You can wait untill 1/2005 if you must.

That's how it works. Sorry if I've been long winded.

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