I think this columnist is offering some very bad advice here. He’s presuming the 58-year-old man would move his 401(k) into a money market and then leave it there forever.

Following this columnist’s advice here, the 58-year-old could have put his 401(k) in something “safe” like a large cap fund and see his principal lose 10 percent since the date of this column. Some Dow stocks are down more than 25 percent for the year and stock and bond funds are way down for the year, too, almost uniformly across the board. They’re a very bad place to be parking retirement funds now.

When you’re close to retirement, you need to protect principal. Anyone who tells you otherwise is giving you foolish advice. You protect it in a money market when the market is imploding, as it has been in 2008, and then move it into equities in a safer, stronger market without risk to your principal.

Many retired folks are in a tight spot right now because they followed the sort of bad advice Mr. Updegrave is offering here.

There’s only one smart rule: when you’re close to retirement, protect your principal. Ignore “experts” who tell you otherwise.

I know what I’m talking about. I’ve always managed my own portfolio and I’ve averaged a 20 percent principal growth for the past thirty years.

How come no one ever mentions having they’re 401k based on US Savings Bonds . The growth is dismal but GURANTEE’D !!!!! An individual does not need an advisor (whom costs money) to see the growth !

I am with you Loren, I believe were in for some serious deflation in housing, retail and the dollar. Some serious price inflation in Commodities. I will park my money in gold/silver bullion. When the tide changes, I will buy into a house real cheap. This may take many years to get through (Japan/Argentina) Its gonna get ugly, good luck.

In a typical recession I am of the let it ride set; but what we are ENTERING is not typical. I say look to the Japanese economy, we could have 10-12 years of bad news.

I agree with Vic from Connecticut. Isn’t trying to guess the market is what it’s all about? I’m close to retirement and I pulled out of my two stock funds last year. One has gained 1.72% and the other lost 7.14% - I would have lost almost 5.5% of my money. Instead, I put it into a stable fund (3m US TBills) for 4.77% and the rest into a bond fund which yielded 10.82% for an average of 7.8% - and I ain’t no expert! But I do love your enthusiasm to continue playing the market into your late 80’s! Of course by that time, waiting a few years for those market rebounds will seem like days.

Not enough specific information to make a judgement other than the basic comments by Walter are correct. He may have $250,000 or he may have $1.5 million…

Matthew, your plan is fatally flawed for one simple reason -inflation. In order for that to work, then you’d have to be getting 4% *after inflation* - conservatively, call it 6%. And low-volatility investments just won’t do that.

To illustrate, suppose that inflation runs 2% a year (very conservative) over a 20 year retirement (again, very conservative). At the end of that time, your $100K is worth only about $67K - you’ve lost a third of your income, just when your expenses are likely to be going up. With less conservative estimates - 3% and 30 years - you only end up with about $40K.

If you actually want to fund a $100K inflation-adjusted income at 3% inflation and with a 4% return, then you need $10M.

Simply put, consult a competent financial advisor IMMEDIATELY, because you quite clearly have no clue what you’re talking about.

Also a few comments on Vic’s comments…

Yes, many have guessed well. Many more have guessed poorly - and unless you’re a full-time professional manager backed up by a staff of analysts, guessing is exactly what it is.

For that reason, not pursuing a buy-and-hold strategy is WORSE than playing Russian roulette. You’re almost guaranteed to lose, and lose horribly.

To Matthew Egan:

Your plan does have some merits, but it does have one big flaw. Your $100,000 will constantly be eroding in purchase power. After twenty years of inflation it won’t be worth anything. While the expenses of work won’t be around, you can expect other expenses (like medical) to keep growing.

With that kind of nest egg I’d keep some of it in stock and bond funds to make sure I outpaced inflation.

The other way to do it is to make sure you never use the whole $100,000. By compounding the profits, you could squeak more out. Not much.

Of course there’s another way to try and make sure your money outlasts you - begin smoking and drinking heavily.

I think you are wrong. If the stock market does a 70’s thing again , which could very well happen with this mortgage debacle, inflation will eat up a 401 k as well as mutual funds. Probably this guy’s 401k is in only mutual funds, and once the fee’s are assessed and he has to start his minimum distributions ,and the share prices drop affecting his bottom line total, more than likely he’ll use it anyway. A better bet would be to keep funding the 401k until retirement date, then move the money into a good CD and take off only the interest until 70 and a half , then take the minimum distribution along with it and it should last his lifetime, or put the money into an immediate income annuity, and take a joint and survivor 10 year certain, and now he quarantees his money. Inflation may hurt , but it would be better than having no money at all at age 83.

Hmmm, please tell me where to find CD’s and triple-tax-free muni bonds that pay 4% above the inflation rate so my purchasing power won’t diminish over the decades.

Matt, if you won’t have to touch the principal why wouldn’t you have some exposure to equities? Yes, the closer you are to retirment the more conservative you should be, but there is still such a thing as too conservative. Eroding purchasing power is not a what if, it’s a given. But then again, it’s your money…

I agree with Pat - there is not enough information to make a recommendation. The amount in retirement savings plays a big role in the equation.

My retirement plan is simple - amass $2.5 million dollars, with no outstanding debt and then put it in laddered CDs and triple tax free muni bonds. If you are able to make 4% ROI (which is conservative) that is an annual salary of $100,000. Without the expenses associated with work - commuting and the like - my wife and I could easily live on that and never touch the principal even 20 years from now.

We are half way there and once we get there we both will be able to sleep sounded at night knowing that our money is as close to safe as possible.

The advice given is correct. The real problem is that people always run from stocks after they swoon and buy them after they have gone up. Work out a plan and stick to it over the long term. Very few, if any, people can time the market. So, don’t even bother trying it.
Also, if the person has $10 million in assets, then they CAN afford to take some risk because they can afford some losses… just the opposite of what was previously posted!

Is shifting funds really “little more than a guessing game”? Many have proved very successful at this “game” - after all, that’s what Wall St. is all about. On the other hand, leaving your nest egg to shrink and shrink in a lengthy bear market - especially when you’re approaching retirement age - could be considered little more than playing Russian roulette.

To Pat Raleigh NC:

If he has $10M, he wouldn’t be asking such naive questions to begin with…

Pat, you’re being facetious, right? We’re talking about this guy’s 401k. He doesn’t have $10M in it.

Walter gives great advice, as usual. Yes, he doesn’t have all the information, but his advice is broad enoough to cover that.

Pete, investing in just preferreds and corps would be way too safe in your 50s. You need more opportunity for appreciation. There’s plenty wrong with wanting to be completely safe when it comes to your money.

nothing wrong with wanting to be safe when it comes to your money, especially after the age of 55. i’d look to invest in preferred stocks and investment grade corp. bonds.

Whatever you do, DO NOT allow ANY broker to have you in a ‘discretionary’ account. Make sure you read “Brokerage Fraud-What Wall Street doesn’t want you to know” by Tracy Stoneman Pride and Doug Schultz to see all of the shenanigans brokers will pull on you if you have your eyes closed. ESPECIALLY now in this volatile economy where normal investors cannot count on the investment banks, ratings agency’s, etc to TELL THE TRUTH.

You do not have enough information to make a recommendation. If he has $10M for example a money market fund may be fine based on his imcome requirements.