Investing for retirement

NEA Today, Apr 1999

Before you invest in anything, develop a long-term plan, then work on creating a balanced portfolio.

Who:

Donna New Haschke, 51, vice president of the Texas State Teachers Association (TSTA) in Austin, Texas

Financial Goal:

To invest for retirement

Game Plan:

"Because I'm no longer teaching, I can't put money into my 403(b) plan," says Haschke, who taught for 25 years before taking leave in 1997 to serve as full-time vice president of TSTA.

"But I have other investments. For example. I've put some money into several mutual funds through NEA's Valuebuilder Program. I started investing in 1992, and since then I've at least doubled my money, so it's been very profitable. My only regret is that I didn't start investing much earlier in my career."

The Experts Say:

The problem most investors face is they don't have a long-term plan. Instead, they buy what their broker recommends or what the latest issue of Mone magazine says is hot.

Formulating an investment plan begins with goal setting. You may think your goal is obvious. You want enough money for retirement, period. But as a retirement investor, you should actually have three investment goals:

Preservation of principal, which means keeping and protecting the money you've already got.

Growth of principal or making your money grow into a larger nest egg.

Earning income from dividends and interest or by drawing on your savings.

To reach all three goals, you need a balanced portfolio-one that includes different types of investments, including stocks, bonds, money market accounts, and real estate. Your portfolio should offset riskier investments with safer ones.

When it comes to risk, the more you're willing to accept, the greater your potential reward. You should know how much risk you can comfortably tolerate, as well as how much you need to accept.

If you're a nervous investor, you should lean toward safer investments. But keep in mind that in order to make your nest egg grow, you have to accept some risk. If you're a long way from reaching your financial goals, you may have to accept more risk to increase your return.

In most cases, retirement investing should lean toward the conservative.

The first rule is to diversify your portfolio, by including a mixed bag of stocks, bonds, and mutual funds.

Second, reduce risk as you get older. The closer you get to retirement, the less time you have to make up for losses from risky investments that fail. Third, remember that the riskiest thing you can do is play it completely safe. By sticking all or most of your investments in the safest-but lowestyielding-investments. such as insured bank accounts, you miss out on growth. And, with inflation, you could actually lose money.

Keep in mind that you don't necessarily need just one portfolio all the time. Some investors periodically shift their investment strategy, starting aggressively when young, leaning toward moderation during middle age, and ending with a conservative portfolio at retirement. Others argue that a middle strategy is best for most people of all ages.

Resources

Most financial planners agree that retirees will need 60 to 80 percent of their pre-retirement income to maintain their current standard of living.

As an NEA member, you can put money aside every month in a taxdeferred annuity. NEA Member Benefits and Nationwide Life Insurance Company developed the NEA Valuebuilder Annuity Program

featuring the NEA Valuebuilder FUTURE and the NEA Valuebuilder SELECT annuities. Both products help you build a customized portfolio that reflects your risk tolerance and financial objectives.

Call 800/NEA-VALUE (800/6328258) to request your free NEA Valuebuilder Lesson Plan for a Successful Retirement.