Regardless of the stage of your life, intelligent planning of your investment program is always important. But it becomes more important as you get older and closer to retirement -- first, because in the normal course of events you can now expect to have more disposable income to invest; and second, because you now have less time to compensate for mistakes.
Here are some of the things to look at as you plan ahead for your retirement years. Keep in mind that these are general guidelines only, not tailored to any individual situation. Your investment program should be geared to your personal objectives.
As you get older, you should be more concerned with safety in your investment portfolio, shifting emphasis gradually from speculation in younger years to security. Risks that were acceptable in your earlier years become extravagant.
At the same time you ought to be moving from growth investments to those kinds of investments that produce income. This may mean, for example, a gradual shift of investment funds from common stocks to preferred stocks or bonds.
For the mutual fund enthusiast, the corollary is a move from growth funds to income stock funds, or perhaps to balanced or bond funds. The real estate investor may want to shift his sights from undeveloped properties to income-producing residential or commercial properties.
Take a look at tax brackets -- the one you're in now and the one you expect to be in after retirement. This may indicate the wisdom of switching out of tax-exempt or tax-sheltered investments and into a higher-yield taxable portfolio.
If this turns out to be so in your case, you may not want to wait until you retire to make the move. To take advantage of good investment opportunites, you may want to place free money in the taxable area some time before retirement even though it means a year or two of higher tax payments.
You now have to consider the impact of inflation on your retirement plans. Even an inflation rate of 5 percent -- a wistful memory in today's double-digit world -- will wipe out almost 40 percent of the purchasing power of your retirement dollars over a 10-year period.
A fixed-income investment (such as a bank account or certificate of deposit, corporate or municipal bond, Treasury bond or note) offers no protection against inflation. The annual rate of return remains unchanged; and the principal amount invested is returned to you in the form of the same number of dollars, with no adjustment for reduced purchasing power.
Only an equity investment -- common stocks, real estate and similar "ownership" assets -- offers the chance for both increased return and appreciation in principal value. But of course the chance for increases inevitably carries also the possibility of decreases, so inflation protection means greater risk.
In this connection, you must consider the sources of your other retirement income. Social security has a built-in flation protector. If you expect to be receiving federal civil service or military retirement pay, you also can expect regular adjustments for inflation, even though there may be changes in the techniques used.
In this case, your investment program can be more conservative, oriented more toward fixed-income media. On the other hand, if you company pension plan does not provide for cost-of-living increases, your investments must do a better job of protecting you against the impact of continuing inflation.
Last week, in connection with a question about insurance trusts, we talked about the importance of both partners participating in family financial decisions. This is a particularly appropriate time to repeat that advice.
Discussion of death and widowhood can be depressing, and may even be seen as cruel; certainly overemphasis on the subject should be avoided.
But what is even more heartless is to permit a marriage partner to come face-to-face with the fact of bereavement without adequate preparation for single survival. It is kindness, not cruelty, to be sure that the emotional trauma of such a time is not compounded by financial concern and bewilderment.