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As I've turned 50, I'm rebalancing on my next birthday to a more conservative mix, although TIAA/CREF calls it "moderately aggressive" -- this new mix is Stock/60% Bond Mkt/15% Infl Linked Bond/10% and Traditional/15%.

Normally the first step in retirment portfolio planning is to figure out how much you plan to spend per year after you retire. Add up all the monthly bills and annual bills. Estimate cost of food, car payment, insurance payments, utility bills, telephone, internet, cell phones, cable tv, health insurance cost, gifts you plan to give (birthdays, Christmas, etc). Then figure out things you won't be spending, like special work clothes, transportation to/from work, retirement savings, other savings, miscellaneous spending money per month, travel costs per year, etc.

Add all that up and figure out the total annual amount you need to live on. Then add the proper amount for taxes, depending on how much of your income will come from an IRA, pension, dividends, etc. A rule of thumb for many people whose income will be in the $50,000 per year range is that they will need about 10% per year over their income to pay taxes. So, for $50,000, that amounts to a total income need of $55,000. However, this varies greatly depending on where the income is coming from. Social security, for instance, is not taxed at all unless you are also working.

Then, figure out how much income you will be getting. Pensions, social security, etc.

Finally you will be able to see how much per year you will need to withdraw from your retirement portfolio per year to live.

If that number is well under 4%, you are in good shape. A 60% Total Stock Market / 40% Total Bond Market mix will support a maximum of about 4% withdrawal per year (indexed upwards with inflation each year thereafter).

Also, you need to evaluate your tolerance to risk. How do you feel when your portfolio drops 30%? Can you still sleep OK? Or will you worry so much that you will be unhappy? If large swings like this will bother you a lot, and your income needs are well below 4%, then you need to shift much more towards bonds; like maybe 60% bonds, 40% stocks. If the volatility bothers you a lot, but you need to take close to 4%, then, you will have to learn to tolerate the large fluctuations, because you must maintain a pretty high percentage in stocks to have a good probability of long term portfolio survival.

You are now into an area that is subjective and different for each person. Some people go into 100% bonds if they don't need much income, just to eliminate the portfolio swings, but if you do this, you risk slowly falling behind inflation over many years. Stocks offset inflation.

Russ
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