As the year ends and your thoughts turn to resolutions and taxes, the mood to “clean out” the old and make those needed changes takes over.  Don’t forget your investments — not just the bad ones but all of them.  As you near retirement, your investment suitability changes and you need to review what you’ve got annually and make sure it was right to begin with and still right now.  Let me alert you about two big mistakes I see far too many retirement-minded boomers and seniors making.

Taking too much risk:  If you read the business section of your paper, review financial advice magazines, listen to the talking heads on the financial shows and listen to your broker you’ll hear about stocks, bonds, mutual funds, REITs, variable annuities, diversified portfolios, etc.  These all have one thing in common: RISK.  If you are forty-something, have a well-paying job and got a couple decades until retirement you can afford investment risk because you have time to recover from market setbacks, bad investments, inflation and higher taxes.  In fact, history shows that longer-term, risky investments like those named above generally do better than bank CDs, fixed annuities, savings accounts and other safe places.  But, what’s good for a forty-something is not necessarily good for a sixty-something knocking on the door of retirement.  There is no time to wait for the market to recovery and there is no steady income from a job. Instead there are 30 years waiting to be financed by the money you’ve already saved, Social Security that is inadequate to begin with and now being taxed to the hilt, and medical expenses are rising like a rocket at the very time your doctor is prescribing medicine to lessen the risk of heart attach and stroke.  You need less investment risk than you’ve probably got right now with your mutual funds, stocks and other investments.  As you review your investments, ask yourself the following question:  “What will I do if the worse case happens?”  If you’d like to review the worst case, go back to 2000-2002 when the market tanked and sent many retirees back to work and would-be retired to a revised retirement schedule.  The money you’ll need in the first half of your retirement should be placed in safe money places — bank CDs and fixed annuities are my favorite choices.  Use bank CDs (I know rates are low but the safety is absolute) for the first five years with tax-deferred fixed annuities holding your five to fifteen year money.  I know you’re worried about fixed annuities because they’re backed by insurance companies. Think about it: insurance companies protect your home, life, health, car, kids, business and you name it, but you don’t trust them with your money.  Is that logical?  By the way, a tax-deferred annuity rate of 5.25% (yes there is a fixed annuity guaranteeing this rate for five years) is equal to a CD rate of 7.0% if you’re in the 25% tax bracket.  Seen any 7% CD rate lately?   Review your risk and make changes if needed … and don’t be afraid to trust some of the world’s oldest, strongest and biggest financial establishments: insurance companies.

Holding only Short-Term Bank CDs: How many of you are holding all, or most, of your retirement money n short-term bank CDs?  Are you planning to spend all of it in the next few months or years?  If not, you’re paying a dear price because two things are happening that is not good.  First, you’re probably not much more than keeping up with inflation because CDs rate are very low now.  Second, you’re paying income taxes on every nickel you earn in interest even if you’re not withdrawing it for use.  How smart is that?  Plus, this higher taxable income from bank CD interest is probably causing more of your Social Security to be taxed.  CDs have a place in the retirement portfolio, but don’t put all your money in CDs unless you only have enough to last you for the next few years.  There are other safe money alternatives that you should learn about if you want to get the most mileage from your hard earned money … and have a safer retirement. 

To get you started on your risk review and learning more about safe money places,  check out this very enlightening web site:  http://www.safemoneyplaces.com/default.asp 

Have a great 2008 everyone.