Retire Now, and Risk Falling Short on Your Nest Egg Part II

Thomas S. Rogers, a certified financial planner and co-owner of the Portland Financial Planning Group in Portland, Me., said he had one client who had planned to retire in July, just as the S.& P. 500 index entered bear territory. Mr. Rogers said he determined that his client, with $1.4 million in savings, could afford to retire. But the client was having trouble selling his condominium and decided to work a bit longer.

“Psychologically, people find it hard to retire when the market is down 20 percent,” Mr. Rogers said.

EASE UP ON WITHDRAWALS One of the most practical alternatives, planners say, is to skip the annual adjustments for inflation and keep the withdrawal amounts steady. “That’s a self-imposed discipline that retirees would be wise to adhere to,” said Ian Weinberg, a certified financial planner in Woodbury, N.Y.

To get a better idea of how much you can afford to withdraw, you can test different amounts with a retirement income calculator on the Web, like T. Rowe Price’s.

FIND YOUR RISK TOLERANCE If the latest market dive tempted you to make major changes to your portfolio, it is time for a gut check. This goes for everyone, whether you’re on the cusp of retirement or you already consider golf your full-time occupation.

“You want to figure out what is the right portfolio mix for you and to also understand, or have a realistic sense, of how bumpy the risk is likely to be,” said Hersh Shefrin, a professor of behavioral finance at Santa Clara University in California. It may make sense, for instance, to reduce the stock portion of your portfolio and possibly invest more in bonds or cash.

Just remember that you can also invest too conservatively. Putting all your money into bonds is not a good idea, either, as stock returns will help the portfolio keep pace with inflation. A reputable adviser can help strike the right balance.

DIVERSIFY At this stage in your life, you should already have a diversified portfolio. It is one of the most important factors in generating more consistent returns and cushioning against sharp declines.

It is hard to generalize what stock-bond-cash split new retirees should have because it depends on their age, tolerance for risk and other individual factors. But investors also need to diversify carefully within those major asset classes.

“It’s not sufficient to say that ‘I’m well diversified because I’m 60-30-10 in stocks, bonds and cash,’” said John Nersesian, managing director for wealth management services at Nuveen Investments. He said that within stock funds, for instance, that money should be divided among “large cap and small cap, growth and value, domestic and international.”

And naturally, as retirement approaches, your mix of investments should gradually become more conservative. You should review your long-term asset allocation plan every 12 to 24 months, mainly to see whether you misjudged your risk tolerance or whether you need money for unforeseen circumstances, said Holly Isdale, head of the wealth advisory group at Lehman Brothers.

Some investors would rather leave this to professionals, whether a financial planner or a target-date retirement fund, whose investment mix gradually becomes more conservative as the retirement date nears. The strategies and fees of target-date funds vary from company to company, so be sure to do a side-by-side comparison.

REBALANCE When markets are volatile, your original asset allocation may be thrown off kilter. Investors should rebalance their portfolios once a year. That means selling positions that have done well and putting that money into areas that have fallen out of favor.

“Rebalancing forces us to do what is emotionally uncomfortable, but financially productive,” Mr. Nersesian of Nuveen said. “The natural thing to do is to add to areas that are doing really well,” when we should be doing the opposite.

“That will ultimately lead to a more consistent return,” he said,