Calculator: Protect Your Savings Five Years Before Retirement
January 2011

Many preretirees leave their investment asset mix alone until the day they retire and then consider making changes. That proved to be a disastrous strategy for those who planned to retire in 2008 and 2009, as they watched the stock market plunge more than 50% (and much of their savings along with it). Here are some guidelines for how to rejigger your investments five years before you retire to protect your income for the first five years in retirement -- and how to position the balance of your portfolio for growth for the next 25 years. This strategy works best for portfolios of $250,000 or more.

FIVE YEARS BEFORE RETIREMENT
PROTECT A PORTION OF YOUR INCOME

STEP 1: WHAT IS THE CURRENT VALUE OF ALL YOUR RETIREMENT ACCOUNTS?

SEE HOW MUCH IT WILL GROW BY RETIREMENT

We're multiplying by 1.28, which assumes 5% annual growth during your five years prior to retirement

STEP 2: HOW MUCH EACH MONTH WILL YOU KEEP SAVING FOR RETIREMENT?

Include your contributions to retirement accounts and any employer match

SEE HOW MUCH MORE YOU'LL SAVE BY RETIREMENT

We're multiplying by 68 (60 months of contributions, with 5% annual growth)

SEE HOW MUCH TOTAL SAVINGS YOU'LL HAVE AT RETIREMENT

We're adding your current savings (plus projected growth over the next five years) and your future savings (plus projected growth) throughout the next five years

PROTECT THIS MUCH MONEY NOW

We're multiplying your total savings at retirement by 0.22. This is how much this plan suggests you should transfer now to create income for your first five years of retirement. You can use a five-year CD, stable value fund, or five-year fixed annuity.