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Smart portfolio moves for retirement
Financial focus
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For most of your working years, your investment strategies, by and large, will probably revolve around achieving sufficient growth to help you meet your long-term goals, such as college for your kids and a comfortable retirement.
Once you are retired, you can't just sit back and put your investment portfolio on "autopilot."
What types of portfolio moves should you make as a retiree? Here are a few possibilities:
• Generate a paycheck. When you're retired, you can collect Social Security and receive distributions from your 401(k) and IRA. But you'll also probably need to generate some income from your investment portfolio. Consequently, you'll need to own the appropriate mix of investments, including stocks that have the potential to pay dividends, bonds and certificates of deposit.
• Protect against inflation. Even if you do need investments to provide you with income, you can't ignore the need for growth because you'll have to contend with inflation. Everything you buy today will cost about twice as much in 25 years, assuming a three percent annual inflation rate. In other words, if you need $75,000 a year to retire comfortably now, you'll need about $150,000 per year in 25 years to maintain your standard of living.
To fight inflation, then, you will need at least some exposure to stocks, which offer the potential for returns greater than the inflation rate. While it's true that by investing in stocks, you can lose some, or all, of your principal, you may be able to reduce your risk by buying quality stocks and holding them for the long term. Other investments can also help protect against inflation.
• Leave a legacy. The estate tax laws are in flux. In 2008, the estate tax exemption -- the amount you can pass to your heirs free of estate taxes -- is $2 million. This figure rises to $3.5 million in 2009. Then, in 2010, the estate tax disappears for one year only. And unless Congress changes the laws before then, in 2011 the exemption will revert to $1 million, with a maximum estate tax rate of 55 percent.
How could you help your family cope with a potential estate tax burden? You could make tactical moves, such as rolling over your 401(k) to an IRA, which, when passed to your heirs, could be stretched for years to reduce the tax bite. You could also reduce the size of your taxable estate by making gifts to relatives and charities. Before making either of these moves, though, consult with your tax and legal advisors.

Cardella is a financial consultant with Edward Jones in Hinesville.
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