In the last issue, we rasied a concern about having your estate plan in order, so that, at your death, your property is distributed the way you would want it to be. As the examples of Heath Ledger and Tim Russert show, you need to be prepared no matter what your age.

For those of us who live to a ripe old age, though, all the carefully thought-out wills and trust documents could be useless if we end up with nothing to leave behind. Good financial planning is also important to ensure that you can support yourself in your retirement years and leave something to your heirs. So, we thought we’d pass on to you some tips from a recent Wall Street Journal article that looked at recent thinking on the best ways to safeguard your retirement savings.

Traditional wisdom has been that, as we get closer to retirement, we should shift our money into interest-bearing investments instead of stocks. The current troubles on Wall Street are a reminder of just how risky it can be to rely on equity investments. Still, over time the stock market can generally deliver more return than relying on interest, and, with many people living longer and healthier lives, stopping all investments in stock can mean giving up the chance for significant gains for many years. Some financial planners today are concentrating on strategies that allow retirees to continue to reap the benefits of stock investment without endangering their financial security.

The author of the Wall Street Journal article, Kelly Greene, interviewed three financial planners with three different approaches.

Cash reserves
Financial advisors Harold Evensky and Deena Katz of Florida recommend creating a cash reserve with approximately two-years of spending money divided equally between a money market fund and a low-cost bond fund. Monthly “paychecks” are transferred from this fund to your checking account. This cash reserve insures that you can weather stock market downturns: You will not be forced to sell off stocks and lock in losses in a bear market.

The remainder of your savings is invested in a portfolio of 70% stocks and 30% bonds. As it becomes possible to sell stocks without significant losses, you can do so to replenish the cash reserve to the two-year level. The 30% in bonds provides a further safety net because, if stock prices remain down for a prolonged period, you can sell off bonds – which shouldn’t have significant losses – to replenish the reserve account.

“Retirement collars”
Finance professor Moshe Milevsky recommends sacrificing some potential gains in exchange for protection from stock losses by investing 15-35% of your savings in one of three vehicles: 1) a variable annuity with guaranteed living benefits; 2) longevity insurance; or 3) a managed pay-out fund. (The less your expected income from defined-benefit pensions and Social Security, he says, the higher the percentage you should devote to one of these plans.)

The advantage of variable annuities (such as Ohio National Financial Services’ “ONcore Lite”) is that they guarantee a base level of annual income - usually 5-6% of the amount investment - but let you reset your guaranteed income to a higher level if the investments inside the annuity do well. The fees are relatively high (up to 3%), and the annuities are very complicated, so these may not be for everyone.

With longevity insurance, you make a one-time payment in exchange for a guaranteed income for life after you reach a certain age. The snag is that you have to pay extra if you want inflation protection or if you want the premium returned to your heirs if you die before the benefits start.

Managed pay-out funds automatically generate a monthly payout for a set period of time and are actively managed to reduce volatility. With these funds, however, there is no guarantee that the investment won’t lose value or that the payouts will increase or even stay the same size.

Pre-Annuity Testing
Financial planner Jim Otar also sees an important role for annuities, but he doesn’t recommend them for everyone. He has come up with warning signs that indicate that you should look to annuities to safeguard your savings.

Using historical research in the market stretching back to 1900, Otar has found that the greatest danger of stock market losses comes during the first four years of retirement. If your withdrawals from savings are 3.6% or less (with a portfolio of 40% stocks and 60% bonds) your savings are likely to last indefinitely. But most people want to withdraw more than this.

So the first warning sign is if, at the end of four years, the total amount of your savings has gone down. If so, chances are that you will run out of money within 20 years. If the amount has gone up, your savings will most probably last at least another 20 years, even if you draw as much as 8%.

Another warning sign is if your withdrawal rate is higher than the payments you could get if you immediately put all of your savings into a fixed-term annuity.

Finally, Otar says that if you are withdrawing at a rate of more than 10% a year, you are almost certain to run out of money. Never in history has such a withdrawal rate been sustainable no matter what the conditions in the stock market.

Be sure to consult with your own financial planner before deciding what strategies are right for you.

He Sued Jesse James
Recently some court documents were discovered showing that not all of Jesse James victims accepted their losses. One Dr. Smoote was forceably relieved of his horse by Frank and Jesse James brothers after Jesse was thrown from his own horse while the brothers were fleeing after a bank robbery.

Determined to recover for his loss, Smoote brought a lawsuit against the brothers. At first the suit was thrown out for lack of service, but then Jesse made a mistake. He wrote a letter to the newspaper saying that he was innocent of the bank robbery. Smoote's attorney argued that, since Jesse was obviously a newspaper reader, they should be able to serve him through a notice in the paper. The judge agreed, and eventually Smoote won a judgment against the James brothers and was awarded the horse that Jesse had left behind at the time of the robbery - a much more valuable horse than the one stolen.

Really Free Credit Reports

A lot of sites offer "free" credit reports now, but often you have to purchase other products. Because of a recent change in the law, however, there is a new source for consumer's who want to check their ratings.

The federal Fair Credit Reporting Act now requires the nationwide consumer credit reporting companies to provide you with a free credit report once every 12 months. So the three companies involved, Equifax, Experian and TransUnion, have sponsored a new website, annualcreditreport.com, where you can order your free report.

The Federal Trade Commission warns that your should be careful to enter the exact name of the site or you may unknowingly be redirected to an unauthorized site. You can also get a report by calling 877-322-8228 or completing a request form available on the site and mailing it in.