What To Do When Retirement Is Near

You'll of course also need to know what asset classes you're invested in. If you own mutual funds and exchange-traded funds, these classes can change frequently as the funds make trades--another argument for tracking it and having it update electronically. Getting a reasonable estimate of what kind of total returns to expect depends on knowing what your funds own.

And what assets should you be invested in? You can probably handle most of your investment needs via just four ETFs: Vanguard Total Stock Market (VTI); Vanguard Total Bond Market (BND); Vanguard FTSE Developed All Cap ex US (VDU); and Vanguard FTSE Emerging Markets (VWO). What percentage in each is another question, having to do with your tolerance for stock market volatility, how close you are to retirement, and a few other things that a software program could help with. In any case, these recommendations are just a starting point. You pretty much can't go wrong with Vanguard investments in terms of their low fees.

Related to that, you'll want to have some idea of what asset classes you will be invested in in the future. Most likely, you'll want to dial back the risk of your portfolio as you approach retirement, investing in more conservative asset classes than you would during your working years.

Reallocating investment assets in retirement

Just as you might own assets that can't be expected to produce income (such as your home or collectibles you don't plan on selling), you might also be expecting income down the road that won't exactly come from assets. Make a list of what income you expect to have that won't come via investments. Here, we're thinking of any pensions, inheritance, Social Security benefits (check ssa.gov to find out what those should look like), and even income from part-time work you plan to do after retirement.

Don't skip this part. Social Security, in particular, can make a huge difference in the success of a retirement plan.

Now You Have A Crystal Ball

OK, you may not be able to see into the future with absolute clarity. But you certainly have a lot better view than you did before starting this exercise. This way is much better than pointing to an almost arbitrary number ($2 million, $5 million) and saying, "as soon as I have this much in assets, I'm going to retire." That "method" won't work for most people.

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