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How to invest when retirement is imminent

When you're just 12 months from the time your paychecks end, you can no longer afford to have most of your money exposed to the volatility of the stock market. After all, if a market crash happens the first month you’ll need income from savings, you’d be in dire straits as you look at big losses and can’t afford to leave your money invested to wait for a recovery.

As you begin shifting some of your portfolio away from stocks, there’s two big questions to answer: how much should you leave invested and what should you do with the rest?

TIAA-CREF Life Insurance Company advises having three different income sources, with one-third of your funds coming from annuity payments, a third from Social Security and pension funds, and the rest from retirement investments.

Withdrawing some of your invested funds to buy an annuity provides a buffer against market fluctuations, as annuities can provide a guaranteed fixed income for life. However, annuities aren't right for everyone, as they sometimes come with high fees and expenses and they limit your liquidity. You'll need to compare options carefully and understand terms and conditions before jumping in.

Another common alternative involves keeping a percentage of your money invested in the stock market while shifting the rest to bonds and cash. Subtracting your age from 100 or 110 — depending on your risk tolerance — gives you an idea of the percentage of equities to have in your portfolio.

You can use the remainder of your funds to build a bond or CD ladder. This involves buying either bonds or CDs with staggered maturity dates to provide a steady flow of income over time while limiting market risk.

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Keep the big picture in mind

As you decide how to invest when retirement is coming up quickly, it's important to keep the big picture in mind. This means considering both how much income your investments will offer and what Social Security can do for you.

Retiring doesn't mean you must claim retirement benefits — and each year you delay their start results in higher monthly checks until age 70.

The impact of waiting is more substantial than you might think. Putting off your claim from age 62 until a full retirement age of 67 allows you to avoid a 30% cut to your standard benefit, while delaying from 67 to 70 raises that standard payment by 24%. Since Social Security is guaranteed for life, boosting these benefits has a big payoff.

Of course, unless you're waiting until 70 to retire, a delayed claim would mean relying on savings to provide more of your support in your early retirement years. Selecting the right investment mix — and making sure you aren't invested either too conservatively or too aggressively — makes that possible.

Whether you consider the annuity approach or simply take a careful look at your asset allocation and begin shifting some of your funds into building a bond or CD ladder, the time to act is now. The year will end and retirement will arrive before you know it.

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Christy Bieber Freelance Writer

Christy Bieber a freelance contributor to Moneywise, who has been writing professionally since 2008. She writes about everything related to money management and has been published by NY Post, Fox Business, USA Today, Forbes Advisor, Credible, Credit Karma, and more. She has a JD from UCLA School of Law and a BA in English Media and Communications from the University of Rochester.

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