How to Manage Your Nest Egg

by Colleen Reinhart, studioD

Managing your nest egg is a lifelong exercise, from the time you start putting cash away into that 401k through to your retirement years when you're making withdrawals to support yourself. During your working years, your focus is maximizing your investment returns without taking on too much risk. Later in life, you need to watch your retirement budget so your hard-earned money lasts until the end of your golden years. Stress-free retirement planning involves thinking ahead and keeping tabs on what the market -- and your investments -- are doing.

Establish an emergency fund, regardless of your stage in the retirement planning process. Although most people think of stocks and bonds when saving for retirement, keeping some of your portfolio in an easily liquidated savings account is important for mitigating the risk of a sudden market crash. If you have stable employment, create a three- to six-month cushion for yourself. If you're retired, have at least a year's worth of income set aside in cash.

Invest your savings in a balanced retirement portfolio. MSN Money writer Liz Pulliam Weston suggests a mix of 60 percent stocks, 30 percent bonds and 10 percent cash, although your numbers may vary based on your age and risk tolerance. If you're young, you can afford to put a bit more into stocks. Older investors nearing retirement and the more risk averse can get away with holding 50 percent of their portfolios in stock. Mid-career workers who want to hold a smaller percentage stock in their portfolios may have to save more of their money annually in order to make up for lower returns.

Contribute regularly to your 401k. Joshua Brockman, author of a retirement article posted on NPR's website, notes that the constant dollar contributions you make with each paycheck make the most sense during an economic downturn. When stock prices are low, your cash buys you more shares, putting you in a better position when the market eventually recovers.

Purchase an annuity as you near retirement age, especially if you're worried about your funds lasting through your golden years. An annuity guarantees fixed payouts for the rest of your life, and since payments don't change with market conditions, major market fluctuations will have less of an effect on your standard of living. Only put about half of your nest egg into an annuity, since you still need other investments to offset inflation.

Schedule a personal financial check-up five years before you plan to retire. Although getting investment advice from a professional is important throughout the savings process, the five years prior to your retirement are critical when it comes to financial planning. If you need to increase your contributions, you still have time to get on track without abandoning your plans. An adviser can also tell you which high-risk investments to drop as portfolio stability becomes more important.

Roll your 401k funds from work over into an IRA before you retire, especially if you want to change your mix of investments. If you have at least $5,000, you can keep your funds with your employer and still get the benefit of tax protection. With an IRA though, you have more investment options.

Withdraw a safe amount of your savings to support yourself during retirement, using current market conditions to judge what makes sense. Tom Lauricella, writer for "The Wall Street Journal," suggests that if you retire when stock valuations are at historic highs, you should start by withdrawing just 3 percent of your savings each year. Otherwise, a 4 percent withdrawal is a safe starting point.

About the Author

A professional writer since 2006, Colleen Reinhart has held positions in technical writing and marketing. She also writes lifestyle, health and business articles. She holds a Bachelor of Arts and Business degree from the University of Waterloo, and a Master's degree in speech-language pathology from the University of Toronto.

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