True or false: It's a good idea to remove stocks from your portfolio and invest strictly in bonds and cash equivalents when you retire.

Answer: Usually false.

If you're nearing retirement and starting to explore strategies for your retirement nest egg, you may be wondering if you should follow this advice when you retire.

The rationale for moving money from growth-oriented stocks to income-producing bonds and cash during retirement is this: You'll be depending on your investments to fund retirement income, so you should no longer bear the risk associated with stocks.

However, this strategy doesn't take into account two very important considerations:

Americans are spending more years in retirement: With life expectancies increasing, you're likely to enjoy a much longer retirement than previous generations. For example, the average 65-year-old man can expect to be retired for almost 16 years, and women will likely spend even longer in retirement—almost 20 years.¹ However, remember that these are just averages. Your retirement may be many years longer, and your retirement assets would have to continue their growth to meet your increasing income needs and health care expenses. And, if early retirement is in your plans, your retirement assets would have to last even longer.

Inflation could erode your retirement portfolio: The longer you'll be depending on your retirement savings for income, the more you'll need to protect those assets from the effects of inflation. In recent years, inflation has been relatively low. For example, inflation averaged 2.7 percent annually from January 1991 to December 2000. However, it's been much higher in previous decades. During the 1980s (January 1981 to December 1990), inflation averaged 4.5 percent annually. It averaged almost double that during the 1970s (January 1971 to December 1980), when it was 8.1 percent.² In fact, the late 1970s saw inflation rates in the low teens.

Keep growth in your portfolio
With a longer retirement outlook and the need to protect your assets against inflation risk, consider keeping a portion of your portfolio allocated to growth-oriented alternatives when you retire. Stocks may entail more risk than other asset classes, such as bonds. But, over the long term, stocks have outperformed bonds and cash. The amount you maintain in growth alternatives will depend on the growth required to sustain your purchasing power during retirement and your risk tolerance.

¹Source: U.S. Dept. of Health & Human Services, National Center for Health Statistics, www.cdc.gov/nchs.
²Source: Ibbotson Associates. SBBI Yearbook 2001.

The above article is for general information only and is not intended to provide specific advice or recommendations for any individual. Consult your attorney, accountant, or financial or tax advisor with regard to your individual situation.

Mutual of America Life Insurance Company is a Registered Broker-Dealer.