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When to flout conventional financial wisdom

Get conservative as you approach retirement
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Get conservative as you approach retirement

Conventional financial wisdom: Reduce the amount of stocks in your portfolio at retirement to protect your nest egg.

Instead: Continue holding enough stocks to ensure your required withdrawal rate can be met throughout retirement, says Barton. Hold three years' worth of living expenses in safe, liquid assets, such as a combination of cash, money market funds, short-term bond funds and laddered CDs.

Why: Many people retiring now at age 55 to 65 will have 20 to 30 years or more in retirement, Barton says. Their portfolios will need to continue working hard for them once they quit working. Reducing the percentage of stock holdings does lower the risk in your portfolio, but it also reduces the potential for return and may create longevity risk -- the chance that you'll outlive your money. With cash in reserve along with stocks, you won't have to sell stocks to raise cash if the market goes down. The cash buffers volatility while the portfolio remains structured to deliver long-term growth, he says.


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