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.
But 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 your own 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 (CDs).
* Protect against inflation. Even if you do need some of your investments to provide you with an income stream, you can't ignore the need for growth -- because you'll have to contend with inflation. Consider this: Everything you buy today will cost about twice as much in 25 years, assuming a 3 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. And with advances in medical treatments leading to longer life spans, it's entirely possible that you could spend 25 years -- or more -- in retirement.
To fight inflation, then, you will need at least some exposure to stocks, which offer the potential to provide 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 level by buying quality stocks and holding them for the long term. You can also help protect yourself against inflation through other investments.
Your financial advisor can help you choose the investments that are appropriate for your needs.
* Leave a legacy. As you may know, the estate tax laws are in flux. In 2008, the estate tax exemption amount -- 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 amount 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 some "tactical" moves, such as rolling over your 401(k) to an IRA, which, when passed on 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 family members and charitable organizations. Before making either of these moves, though, consult with your tax and legal advisors.
Clearly, there are many portfolio considerations for retirees. So, when you're nearing retirement, start planning ahead. By making the right moves, you can make your "golden years" considerably brighter.
Editor's Note: Edwards Jones does not offer tax or legal advice. You should consult with a competent tax or legal adviser for your specific situation.