MONEY Taxes

Retiring? Make the Best Use of Tax-Deferred Plans

From the years you spend tending to your portfolio to the time when you finally get to enjoy sweet success, you face questions about what to do. Ace these and prosper.

This story is part of Money magazine’s story 5 retirement choices: Get ‘em right, live well which covers big decisions that can dramatically boost your income in retirement.

Once you determine how much of a saver you are, you have several more decisions to make — including how to best take advantage of tax-deferred plans.

Decision No. 4: What’s the best use of tax-deferred plans?

The decision: When it comes to your 401(k), IRA, and Roth IRA, you potentially face two decisions. One is divvying up your investments between taxable and tax-advantaged accounts. The other is when to tap each type of account.

Why it’s important: You have virtually no control over what happens to tax rates. But you can reduce the drag that taxes can have on your investments.

Regardless of how Congress may change taxes in the future, you’ll almost certainly continue to face different tax rates on different types of investments.All gains in 401(k)s and traditional IRAs are taxed at ordinary income rates when withdrawn (a top rate of39.6% in 2013); outside of these plans, you face lower rates on long-term capital gains and dividends (a max of 20% in 2013).

You can minimize the tax man’s take by keeping investments like stock index funds, stock ETFs, and dividend funds in taxable accounts to take advantage of long-term capital gains rates and holding bond funds and actively managed stock funds that trade a lot in tax-deferred accounts.

In retirement, the idea is to blunt the effect of taxes by tapping your nest egg in a tax-efficient manner. The traditional advice is to pull money from taxable accounts first, where you’ll presumable pay the lower capital gains rate, then move on to tax-deferred accounts like 401(k)s and IRAs, and finally Roth IRAs. The balances in your tax-advantaged accounts will have more time to compound tax-free.

Best move: While these strategies can be effective — Morningstar estimates that following both in retirement can up your income by roughly 8% — stay flexible. In fact, says David Blanchett, Morningstar’s head of retirement research, “you should maintain your target stocks/bonds mix first and then allocate your assets as best you can for tax efficiency.”

Related: The other way to invest in a Roth IRA

Similarly, you don’t want to be too rigid about withdrawals. In some years, for example, you may be able to sell taxable investments at a loss and use that loss to offset taxes on your 401(k) or IRA withdrawals. By liquidating taxable accounts early in retirement, you lose that flexibility. And once you reach age 70½, you’re required to draw at least some money from your IRA and, unless you’re still working, your 401(k).

Besides, you can’t know what the tax system will look like down the road. Having savings in a variety of accounts that receive different tax treatment gives you more leeway for managing withdrawals — and your tax bill — later.

 

MONEY financial advisers

Do You Really Need An Investment Adviser?

From the years you spend tending to your portfolio to the time when you finally get to enjoy sweet success, you face questions about what to do. Ace these and prosper.

This story is part of Money magazine’s story 5 retirement choices: Get ‘em right, live well which covers big decisions that can dramatically boost your income in retirement.

Once you determine how much of a saver you are, you have several more decisions to make — including whether you should pay for the advice of a financial planner.

Decision No. 3: How much help do you really need?

The decision: As you get deeper into retirement investing, you may find yourself at a crossroads: Should you go it alone — set your own asset allocation, choose funds, monitor your progress, make adjustments — or do you need professional input? In retirement, can you tackle the tricky drawdown solo?

There’s no one right answer. The decision comes down to your comfort level and confidence, plus your ease with the online tools that make a DIY approach easier.

Why it’s important: You can pay the skimpiest fees possible by picking index funds yourself.

If you prefer giving your money to an active fund manager in hopes of beating the market, you’ll pay another half a percentage point or more a year. And turning your money over to an adviser can add 1% a year to your costs.

The benefit of holding the line on expenses is pretty intuitive when you’re saving for retirement. The less you spend on fees, the more of your gains you get to keep. Over a 35-year career, paying one percentage point less annually can mean a 20% larger nest egg.

Keeping a lid on expenses after you’ve retired is equally important. By reining in costs you may be able of reduce the chances of running out of money. And you’ll be able to draw more from your portfolio every year.

Best move: Take advantage of free asset allocation and investment selection tools in your company’s retirement plan or at fund company sites.

Last year the Department of Labor began requiring employers to be more transparent about 401(k) fees, which should make it easier for you to home in on the lowest-cost investments in your plain.

Outside your plan, you can turn to online tools like Morningstar’s Fund Screener, which allows you to sort funds by their expense ratios. And our MONEY 50 includes ETFs that charge as little as 0.05%.

When you do need help, say as you’re ready to retire or retired, an alternative to paying a pro 1% of your assets a year is to periodically have a planner evaluate your progress. You’ll pay $150 to $200 an hour, or about $1,000, assuming about five hours for the checkup.

 

MONEY Investing

Where To Put Your Retirement Money

From the years you spend tending to your portfolio to the time when you finally get to enjoy sweet success, you face questions about what to do. Ace these and prosper.

This story is part of Money magazine’s story 5 retirement choices: Get ‘em right, live well which covers big decisions that can dramatically boost your income in retirement.

Once you determine how much of a saver you are, you have several more decisions to make — including how you invest your portfolio.

Decision No. 2: How should you divide up your money?

The decision: Once you’ve amassed a portfolio worth more than five figures, you may wonder whether you should branch out from plain-vanilla stock and bond funds.

To hear some advisers tell it, you can’t have a truly diversified portfolio unless you spread your money among virtually every asset class, sector, and subsector under the sun: hedge funds, currency, single-country funds, precious metals, exotic ETFs.

Why it’s important: You can capture more than enough of the benefits of diversification — solid returns while minimizing risk — with a relatively simple stocks/bonds mix.

Related: Betting your retirement on stocks

Start by making sure you own a broad swath of U.S. stocks and bonds. Then add developed and emerging foreign markets.

For inflation protection, you might pick up some real estate and TIPS. Adding more to this basic blend isn’t likely to appreciably boost your performance.

In fact, stocking up on a dozen or more different assets may work against you. One reason is the phenomenon that asset-allocation expert William Bernstein refers to as “overgrazing” — as more and more investors plow money into a newly discovered alternative investment, the lower its expected return.

Related: Investing in TIPS – Can retirees beat inflation?

“The first ones in get sirloin, but the latecomers get hamburger or worse,” says Bernstein. Many nontraditional assets also come with hefty fees.

As you pile on more investments, monitoring and managing them become harder.

“If you’ve got upwards of 20 different investments in 401(k)s, IRAs, and taxable accounts, you’re talking about a blizzard of trading every time you rebalance,” says Wealthcare Capital Management CEO David Loeper.

Best move: The simplest way to create this mix is by using index funds or ETFs from our MONEY 50 list. Aside from simplicity, they have the advantage of certainty: These funds strictly follow defined benchmarks, so you know exactly how they’ll invest.

Most important, though, resist the urge to jump onto the alternative investments bandwagon. Says Bernstein: “Wall Street needs to sell them, but you don’t need to buy them.”

 

MONEY Savings

5 Retirement Choices: Saving vs. Investing

From the years you spend tending to your portfolio to the time when you finally get to enjoy sweet success, you face questions about what to do. Ace these five and prosper.

Making better decisions can dramatically boost your income in retirement, a new study finds. That’s not exactly earth-shattering news. What may surprise you are which decisions matter most, according to researchers at Morningstar.

They are not the kinds of choices you may obsess about, like whether to buy Apple stock or where to find the next hot emerging market. Rather, the most crucial decisions involve more fundamental issues, like how you manage your 401(k) plan.

The idea of making savvy choices applies to all phases of planning. So, based on what I’ve learned writing my Ask the Expert column, I came up with these five big decisions you need to get right before and after you retire.

1. Are you a saver or an investor?
2. How should you divide up your money?
3. How much help do you really need?
4. What’s the best use of tax-deferred plans?
5. How much can you draw from your savings?

Decision No. 1: Are you a saver or an investor?

The decision: When you sign up for a retirement plan or use an online calculator to track your retirement progress, you must decide how much to save and how to invest those savings. It may seem counterintuitive, but your savings rate is by far more crucial.

Why it’s important: Even though history shows that tilting a portfolio toward equities generates higher returns, loftier gains are hardly guaranteed — witness the 3.4% annualized loss you would have suffered by investing in the S&P 500 index from March 1999 to March 2009. And investing too aggressively leaves you more vulnerable to downturns like the near 60% drop in the 2007-09 bear market. Ratcheting up the amount you sock away is a surer way to improve your chances of achieving a secure retirement.

Increasing how much you save every year has a much bigger impact on your eventual retirement security than investing more aggressively does. The reason: While shifting more savings to stocks enhances return potential, it also increases volatility, which dilutes the effectiveness of a stock-heavy portfolio.

Saving more has another benefit: You can afford to invest more conservatively. By saving 20% a year for 30 years — a high bar, for sure — you can trim stock holdings to 60% and still have the same high chance of success you would have with an 80/20 mix.

Best move: Aim to save 15% or more a year. You’ll improve your odds of retiring in comfort and be less vulnerable to the vagaries of the markets.

MONEY Ask the Expert

Betting Your Retirement: Stocks vs. bonds

Q. I’m 35 years old and a diligent saver. I’m torn, however, about whether someone my age should own bonds. If the stock market has never had a negative 10-year span, shouldn’t I invest 100% of my savings in stocks and keep it there until I’m within a decade or so retiring? — Mark N., Austin, Texas

A. With stocks on a roll in recent months, investors who were shunning equities just last year are feeling positively ebullient about them now. But before you plow all your retirement savings into stocks, I have two words of caution for you: Downton Abbey.

What, you may ask, could a soap opera set in England in the early 20th century possibly have to do with your retirement planning? Rather a lot, actually.

As viewers of Downton’s third-season premiere will recall, Lord Grantham’s lawyer informed him that the Canadian railway into which he had sunk the bulk of his wife Cora’s fortune stood on the verge of bankruptcy, jeopardizing the financial health of his estate.

Upon hearing this news, the Earl of Grantham thundered, “Every forecast was certain. Rail shares were bound to make a fortune…It wasn’t just me. Everyone said we couldn’t lose!”

I’m not saying that putting 100% of your retirement savings in stocks is as rash as Lord Grantham’s decision to invest so heavily in just one stock. But tying your retirement prospects to the performance of a single asset class — and a very volatile one at that — wouldn’t exactly qualify as a prudent move either.

One reason is that while losses in stocks over long stretches are rare, they do happen, despite your supposition to the contrary.

Related: Can retirees beat inflation?

For the 10 years from 1999 through 2008, for example, large-company stocks lost 13% of their value. There have also been a handful of 10-year and even 20-year spans during which stocks had positive returns yet still lagged bonds.

So while I think it’s reasonable to expect stocks to outperform bonds over the long term in most instances, there’s enough variation so that it pays to hedge. The investing world is too uncertain for all-or-nothing bets.

Besides, you shouldn’t be basing your investing strategy solely on expected returns. You’ve also got to consider your risk tolerance, or how you’ll likely react if the market tanks (as it inevitably will many times between now and when you retire).

It’s one thing to say you think you should be 100% in stocks because you believe that over long periods equities will rack up the highest gains. It’s quite another to stick to that strategy when a plunging stock market zaps the value of your 401(k) by 50% or more, and it’s anyone’s guess how long it will take for your account to bounce back.

My suggestion: Go to a good online retirement calculator and plug in such information as your age, when you think you might retire, how much you already have tucked away in retirement accounts and how much you plan to save going forward. Then run scenarios with different investing strategies –100% stocks, 90% stock/10% bonds, 80%/20%, etc. — and see how the probability of achieving a secure retirement changes as you reduce the percentage of your savings you devote to stocks.

Related: 4 ways the market could really surprise you

If you’re really the diligent saver you say you are, you may find that you don’t have to resort to a high-octane stock mix to have a good shot at a comfortable retirement. You may be able to get by with a more conservative stocks-bonds blend. You might also find that after a certain threshold — say, 70% or 80% stocks — adding more equities doesn’t improve the odds very much at all.

Of course, it’s also true that the more you invest in stocks, the better you’ll do if the markets do well. But that upside isn’t a given, and even if it materializes it can come with some frightening spills and chills along the way. So it can pay to sacrifice some upside in return for a less jarring ride.

As you near and enter retirement, you’ll probably want to gradually scale back the amount you devote to stocks. Research shows that risk tolerance tends to decrease with age. Besides, the consequences of aggressive investing can be more dire later in life. Once you’re retired, you no longer have a chance to make up for investment losses by saving more.

That means a big hit to your nest egg could result in you running out of money before you run out of time. For guidance on how you might shift from stocks to bonds as you age, check out this illustration of a target-date retirement fund “glide path.”

But whatever you do, don’t go all stocks on the mistaken notion that equities are a definite win as long as you remain invested in them at least 10 years. If you do, you may later find, as Lord Grantham did, that no forecast, regardless of how certain it may seem, can ever guarantee that you can’t lose.

MONEY Ask the Expert

Investing in TIPS: Can Retirees Beat Inflation?

Q. Are TIPS a good investment for a retiree? — Rich Sherman

A. If your goal is to protect the value of your assets and your income from inflation over the course of a long retirement, then you should certainly consider TIPS, or Treasury Inflation Protected Securities.

But before you go stuffing your retirement portfolio with them — or more likely, TIPS funds — you first need to understand the type of the inflation risks you face in retirement. You’ll also want to keep in mind that you already have a very powerful inflation buffer in Social Security, as its payments are pegged to the inflation rate.

So as important as hedging your retirement portfolio against inflation is, you don’t want to overdo it.

Essentially, you need to guard against two forms of inflation during retirement. The first is what economists call expected inflation, or the steady rise in the price level that takes place over many years.

Hedging against this version of inflation is relatively straightforward: Keep a portion of your savings in investments that have the potential to generate returns several percentage points or more above the inflation rate over the long term.

Stocks are clearly one such investment, although mutual funds that invest in REITS and other real estate-related investments can also provide long-term inflation-beating returns. (Don’t forget that if you own a truly diversified portfolio of stocks, such as a total stock market index fund, you already have REITs in the mix.)

Related: Long-term investing — keep it simple

The second type of inflation you need to protect against is unexpected inflation. This is the kind that can flare up suddenly, like the oil-price shocks of the mid-1970s and early 1980s.

These spikes are usually relatively short-lived, so they’re not a major issue for people still investing for a retirement that’s decades down the road. But if you’re a retiree relying on your investments for current spending cash, even short spurts of inflation can make it more difficult to maintain your standard of living.

The issue is how to deal with this second inflation threat. Many advisers recommend investments like commodities or gold, which have the potential to generate lofty returns when unanticipated inflation takes off.

But Vanguard Investment Counseling and Research principal John Ameriks points out that these outsized returns aren’t a given. “There are many historical instances where you see high inflation and low commodity returns,” says Ameriks. Indeed, research shows that there’s roughly a 30% chance that commodities could post negative returns if inflation goes up.

TIPS, on the other hand, are uniquely suited for handling unexpected inflation. Unlike commodities or gold, which may be statistically likely to climb in value if inflation spikes, TIPS have been specifically designed to rise along with increases in the consumer price index.

Related: Are emerging market bond funds a safe haven?

That said, TIPS also have some drawbacks. They are bonds, so their value can fall if real interest rates rise. What’s more, demand for TIPS from investors seeking shelter from inflation has pushed their real yield, or their payout after inflation, close to or even below zero. Recently, for example, the real yield on 10-year TIPS was -0.53%.

Many advisers have pointed to TIPS’ negative real yields as a reason not to own them. But while investing in TIPS when their real yield is negative does mean you’ll earn less than the inflation rate, the principal value of the TIPS and the income they throw off will still rise if inflation picks up. Thus, by owning them you are still protecting yourself should inflation climb in the future or spike unexpectedly in the short-run.

Besides, it’s not as if regular Treasuries or other bonds will thrive if inflation heats up. Quite the opposite. Conventional 10-year Treasuries recently yielded about 2.03%. So if inflation exceeds that level over the next 10 years, regular 10-year Treasuries would generate a loss. And if inflation exceeds 2.56% — the recent difference between the -0.53% yield for 10-year TIPS and the 2.03% yield for 10-year nominal Treasuries — then TIPS will outperform regular, or nominal, Treasuries.

That’s why you really want to own both TIPS and regular Treasuries and other bonds. If inflation rises over time or just spikes for a shorter period at some point in the future, then TIPS could be the better performer. If inflation stays tame or becomes even more docile, then conventional bonds will generate better returns. By owning both, you’re hedging your bets.

You can argue about how much of a retiree’s bond stake should go to TIPS vs. nominal bonds. But if your retirement portfolio already includes some stocks to protect against expected inflation over the longer term, then devoting, say, 25% to 30% of your bond holdings to TIPS seems a reasonable way to guard against both expected and unexpected inflation.

Bottom line: Investing in TIPS is a reasonable way for you to protect your purchasing power in retirement. But do it in moderation. Because the more you focus your investing strategy toward dealing with one risk, the more vulnerable you are to others.

MONEY

A Couple’s 5-Year Plan to Pay off $93,600 in Debt

Larry and Lynn Mantanona, 56 and 54, Fairview, Ore. photo: miller mobley

When it comes to family, Lynn and Larry Mantanona believe in sparing no expense. That means frequent travels to Larry’s native Guam for weddings, funerals, and other big family events.

They had no qualms about taking a $12,000 loan for college tuition for Savanah, 22, and borrowing $20,000 for wedding expenses for Chanelle, 28.

“We want to do for our daughters what our parents couldn’t do for us,” says Lynn.

Now the couple find themselves in a difficult situation. The Mantanonas owe over $90,000 on various credit cards and personal loans and can’t seem to whittle the debt down.

“We aggressively make payments, but then something comes up, and we have no savings to fall back on,” says Lynn. They also owe more on their house than it’s worth.

On the upside: The couple have a decent amount of retirement savings, thanks to Lynn’s longtime habit of putting 5% of her salary in her 401(k). She’ll also qualify for a monthly pension of $1,300 at age 62.

Still, the couple feel behind. “Lynn deserves to retire in 10 years,” says Larry. “I’ll keep working if I have to.”

Occupations: Catering manager,IT manager

Goals: Pay off debt, retire in 10 years

Total income: $152,000

Retirement savings: $330,000

THE PROBLEM

The Mantanonas clearly need to axe the debt, says Marc Russell, an adviser with Convergent Wealth Advisors in Los Angeles. Still, they need to keep saving for retirement. “It’s about weighing competing priorities,” Russell says. With the right plan, they can get there.

THE ADVICE

Make a repayment plan. In early 2013, Lynn will receive a $14,000 tax-free gift from her mother. That money can nearly wipe out their credit card debt.

By temporarily cutting Lynn’s retirement contributions to 3% — enough to still get the full company match — they’ll free enough cash to make a big dent in their highest-rate debt within a year. Then they can focus on other loans.

Check for money leaks. After closely examining the Mantanonas’ budget, Russell thinks they can carve out $200 a month to save in a money-market account earmarked for emergencies and future expenses.

As they pay their debts, they should aim to build the emergency fund to six months’ worth of living expenses and save more aggressively for retirement.

Move into a target-date fund. Right now Lynn’s retirement plan is mostly low-yielding government bonds.

Russell suggests she shift into the low-fee 2020 target-date fund in her plan, which would bring her fixed-income allocation to about 46%, or half what it is now.

Assuming the couple save an additional $12,000 a year for retirement beginning in 2018, they should hit $600,000 in savings in 10 years — not what they need to fully retire, but not far off.

Says Lynn: “At least that will bring us to a manageable situation.”

Would you like a free financial makeover in Money magazine? E-mail makeover@moneymail.com for more information.

MONEY Ask the Expert

Long-Term Investing: Keep It Simple

Q. I have $12,000 that I’m ready to invest for a long term. But I’m not sure whether to buy regular mutual funds, index funds or a mix of both. What do you suggest? — Daniel, Sugarland, Texas

A. I believe that investors are generally better off when they keep things simple. So for that reason alone, I’d go with index funds.

You can make a very nice diversified portfolio for yourself by combining just two funds: a total stock market index fund and a total bond market index fund . That would give you a portfolio that covers all sectors of the U.S. stock market — large and small caps, value and growth shares, virtually every industry — as well as the entire investment-grade taxable bond market, including government and corporate bonds.

You would do just fine if you stopped there.

But if you want to add some exposure to foreign markets — which over the long run can reduce the volatility of your portfolio overall — you could also throw in a total international stock index fund . For guidance on how to divvy up your holdings between stocks and bonds, you can check out our Fix Your Mix asset allocation tool.

Simplicity aside, this approach offers another huge benefit: low annual expenses.

By sticking to diversified stock and bond index funds, you’ll likely pay yearly fees of less than 0.25% of the amount invested, in some cases less than half that figure. Regular, or actively managed, mutual funds on the other hand, often charge 1% of assets or more. And while there’s no guarantee that lower expenses leads to better performance, there’s plenty of evidence that’s the case, including this 2010 Morningstar study.

Oh, and there’s one more reason I prefer index funds: You know exactly what you’re getting. As their name implies, index funds track a particular index or stock market benchmark. The fund holds all, or in some cases a representative sample, of the stocks in the index and nothing more (except, perhaps, a smidgen of cash to accommodate redeeming shareholders).

Managers of actively managed funds, by contrast, have lots of wiggle room when it comes to investing.

So even though a fund may purport to specialize in, say, domestic large-cap value stocks, it’s not unusual to find a manager making forays into small-caps, growth stocks or even foreign shares in an attempt to juice returns. This sort of “adventurism” makes it harder to use actively managed funds as building blocks for a diversified portfolio in which you’re counting on each fund to play a specific role.

But as much as I believe index funds are the better choice, I don’t think you’d be jeopardizing your financial future by devoting a portion of your investing stash to actively managed funds. And if that’s the way you want to roll, you should have no trouble finding funds run by smart managers with solid long-term records who can do a credible job of investing your money.

In that case, you might employ a version of what’s known as a “core and explore” strategy: put most of your money into index funds and then round out your portfolio with some well-chosen actively managed funds.

Related: Mutual funds – a simple way to diversify your portfolio

How much of your dough goes into the core vs. explore is up to you. But to prevent any bad picks from undermining your portfolio’s overall performance, I’d recommend keeping the active portion of your holdings pretty small, say, 10% to 15%.

There’s one other thing you’ll want to be careful about if you decide to take this hybrid approach. Some advisers suggest using index funds in “efficient” markets like those for U.S. and developed country large-cap stocks and recommend actively managed funds for “inefficient” markets like those for small-caps and emerging market stocks. But identifying efficient vs. inefficient markets isn’t quite so simple, and finding active managers who consistently outperform is difficult in almost any market.

So I’d recommend that you get exposure to all markets with index funds and then add the actively managed funds you like even if it means you’ll have a bit of overlap in some areas.

I also suggest that as much as possible you go with actively managed funds that have reasonable expenses, as that should give those funds a better shot at competitive performance. You can find such funds, as well as all the index funds you’ll need, on our MONEY 50 list of recommended funds.

To sum up, I think most investors would be best served if they just stick with a straightforward portfolio of broad index funds.

Human nature being what it is, however, many people will give in to the urge to venture beyond the indexes for the thrill (even if only fleeting) of finding a fund that beats the market. If you’re one of those people, fine. Just don’t let yielding to that urge undermine your investing results.

MONEY Ask the Expert

Your Future Self Thinks You Should Save More for Retirement

From: faceretirement.merrilledge.com/

Q. How do I convince my spender husband that it makes sense to contribute more to his 401(k)? — G.L.

A. You’ve got a bit of an uphill battle for the simple reason that it’s a lot more fun to spend than save. Still, I have a suggestion that may be able to help you convince your hubby to rein in his free-spending ways and throw a few more bucks into the old retirement account: Introduce your husband to his future self.

How, you may ask, can you do that? Before I tell you, you first need to know why such a meeting might spur your husband to save more.

Ultimately, saving comes down to foregoing spending money today so you can spend it (plus however much it earns) later in life.

Problem is, research shows that the present day you doesn’t identify particularly well with the older you. Given that disconnect, you don’t have much of an incentive to abstain from spending and the pleasure it can bring today to make life better for this stranger in the future.

But apparently there’s a way to bridge the gap between our current and future selves.

Researchers at Stanford University conducted experiments in which they put two groups of students into virtual reality headgear and had them interact with realistic computer renderings of themselves. But one group was shown only images of themselves at their current age, while the other also saw age-morphed versions of how they may look in retirement.

When each group was later asked how much they would save for retirement, the ones who saw their older selves said they would save twice as much on average as the other group. Apparently they felt more of a bond with their future self and thus were more disposed to do something today to help that person.

You can do a somewhat similar experiment with your hubby. Just have him go to Merrill Edge Face Retirement and click on “Meet the Future You.” After entering his age and gender, he’ll be able to snap an online photo of himself (assuming his computer has a built-in camera) to which the site applies facial-aging software. He’ll then see a series of photos simulating what he might look like at different ages late in life.

The idea is that seeing a version of himself at, say 77, may make him think more seriously about the fact that he’ll still be around at that age and have to support himself in retirement.

The little factoids that accompany the photos at different ages — Cost of a new car in 2034: $62,000; Cost of living increase from 2012 to 2054: 307% — may also help drive home the point that he’ll need a sizable nest egg if he hopes to maintain his lifestyle in retirement.

Related: Take control of your spending

I’m not saying that going through this exercise — which, if only for kicks, you may want to try, too — will lead your husband to immediately boost his 401(k) contribution by 50%. But it could get you both talking about retirement and whether you’re adequately preparing for it.

Ideally, that discussion will lead you and your husband to take some other steps to advance your retirement planning. To get a sense of how you might actually live in retirement, you could check out Ready-2-Retire, a tool that allows you to sort through photos of different retirement activities (traveling, going back to school, etc.) and prioritize them based on how likely you are to engage in them. Once you have a decent idea of what kind of retirement lifestyle you aspire to, you can then go to a tool like our Retirement Planner to see how much you should be saving to achieve that goal.

See whether you’re saving enough

If after checking out these tools you find that your husband is actually putting away enough to assure you’ll both have a secure retirement, that’s great. You can both feel reassured about that.

But if it turns out that your husband really does need to save more, then having him meet a digital version of his future self maybe just the motivation he needs.

MONEY Ask the Expert

Reasons to Cut Back on Stocks in Retirement

Q. Why is the recommended mix of stocks and bonds any different at the beginning of my career than at the start of retirement? I don’t understand why I should reduce my exposure to stocks when I retire, as I’ll still have 30 years of investing ahead of me. — Gordon Groff, Lancaster, Pa.

A. You’re right. You should be investing for the long term — both during your career and after you retire. Still, there are some key differences between those two stages of life that argue for gradually scaling back on equities after you retire.

The single biggest difference is that you have a lot more flexibility during your career when it comes to retirement planning. For example, if you have the bulk of your retirement accounts in stocks and the market tanks, you’ve got plenty of options for rebuilding the value of those accounts.

With years of work still ahead of you, you can simply sit back and wait for the market to rebound and eventually climb to higher ground. Or you can pump up the amount you contribute to your retirement accounts, which will hasten the recovery of your balances.

If worse comes to worse, you can always postpone retirement for a year or two, which will give your nest egg a chance to grow through a combination of additional savings and a few extra years of investment returns.

But if your savings are heavily invested in stocks in retirement and the market takes a dive, you don’t have nearly as much wiggle room.

Unlike during your career when you’re still putting money into your 401(k), IRA or other accounts, you’ll be pulling money out of your nest egg once you retire. And that creates a very different dynamic.

Related: Retirement checkup for the new year

Specifically, the combination of investment losses from a market downturn, plus withdrawals from your account for retirement living expenses creates a double-whammy effect that can decimate the value of your portfolio and dramatically increase your chances of outliving your dough.

As a result, the same market meltdown that may be very unsettling during your career can be absolutely devastating after you’ve retired, perhaps even forcing you to radically scale back your standard of living to avoid running through your money too soon.

Here’s an example. Let’s say you retire at 65 with $500,000 in savings from which you plan to withdraw an initial 4%, or $20,000, that you will increase annually by the inflation rate to maintain your purchasing power. And let’s further assume that you would like your savings to support you at least 30 years.

If you plug that scenario into a good online retirement calculator, you’ll find that the chances of your nest egg lasting 30 years are roughly the same — just under 80% — whether you invest 80% of your savings in stocks and 20% in bonds or split it 50-50 between the two.

And although the calculator doesn’t show this, it’s also true that if all goes well and there are no major blowups in the market, the higher returns stocks can deliver might allow you to draw even more from your nest egg than had you gone with the 50-50 mix.

Related: Market timing — Not a good retirement strategy

The problem is what happens to those odds if things go badly. For example, if you had retired at the beginning of 2008 with 80% of your savings in stocks and 20% in bonds and embarked on the withdrawal scenario above, at the end of the first year of retirement the combination of a $20,000 withdrawal and a 30% investment loss would have left you with a nest egg worth roughly $340,000 — a 32% decline in a single year.

If you continued to withdraw $20,000 and increased annually for inflation of, say 3%, the chances of your savings lasting the next 29 years to age 95 would plummet from a little less than 80% to just under 40%.

By contrast, had you invested half your savings in stocks and half in bonds, the combination of your initial withdrawal and the market downturn would have left you with a nest egg worth a bit more than $400,000.

The probability of your money lasting to age 95 would decline. But since your nest egg wasn’t whacked as hard, the chances would drop to just over 50%.

Clearly, in both cases you would have to make some adjustments — going without an inflation increase for a few years, reducing your withdrawals outright or perhaps even taking on part-time work.

The difference is that with the more conservative portfolio, the compromises you would have to make to your retirement lifestyle wouldn’t have to be as severe. And you wouldn’t be as vulnerable to potential market setbacks in the future.

Now, does that mean that it can never make sense to invest somewhat aggressively in retirement? Of course not.

Related: Emergency funds: Risk versus returns

If income from Social Security and a traditional company pension covered all or nearly all of your annual expenses, then theoretically you may be able to invest quite heavily in stocks.

After all, if your retirement accounts suffered serious losses, you would still have enough income apart from savings withdrawals to maintain your lifestyle (although even then you would have to consider whether you would be emotionally okay watching your nest egg’s value decline by 30% or more).

Bottom line: If you’ll have lots of income flowing in throughout retirement from guaranteed sources — or your nest egg is so large or withdrawal rate so small that your chances of depleting it are truly minimal — then I suppose you could invest the same way late in life as you did at the beginning of your career. But if that’s not the case — and I suspect it’s not for most of us — the more prudent approach is to scale back your stock exposure as you near and enter retirement.

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