One of the hardest challenges you face that your parents and grandparents didn't have to stress over is how to spend your 401(k) and IRA money at a pace that won't put you at risk of running out of money later in life. All your parents and grandparents had to do was mosey on down to the mailbox and collect their pension and Social Security checks. You need to calculate a sustainable withdrawal rate from your personal retirement accounts that won't put you at risk of outliving your money. Talk about a changed retirement dream!

I am going to suggest that if you plan to start making withdrawals in your late 60s, you aim to withdraw no more than 4% in the first year. So, for example, if you have $250,000 in your 401(k), your withdrawal in the first year would be $10,000. Then you can adjust the amount you withdraw each year in line with inflation. If you wait until you are 70 to start your withdrawals, you might consider starting your withdrawals at a 5% initial annual rate.

Okay, did that news just give you a minor heart attack? Why am I telling you to start with only a 4% or 5% annual withdrawal rate? Well, it's that same old good news/bad news problem: your life expectancy. Because we are living longer than past generations we need to set a conservative withdrawal pace that would give us a high probability that we would not run out of money in 25 or 30 years. Of course, this is just a rule of thumb. If you have other a.s.sets you can tap-maybe you expect an inheritance-or your family history suggests you may not live into your late 80s and 90s, then you might consider a slightly higher withdrawal rate. But please stand in the truth that your biggest retirement risk is also a blessing: the fact that you could live a very, very long time. A conservative withdrawal rate is your best strategy for making sure that long life will not come with financial stress.

My recommendation is to use a free online retirement calculator to help you estimate what the monthly income from your 401(k) and IRA investments may be. There are many variables that go into the calculation, including how much you will continue to save between now and retirement and the return you may earn. T. Rowe Price and Vanguard have calculators that use solid a.s.sumptions, including an initial 4% withdrawal rate.

Go to The Cla.s.sroom at www.suzeorman.com:There you will find links to the T. Rowe Price and Vanguard retirement income calculators.

Calculator tips: - Exclude Social Security from your calculation, as we have already figured that out.

- Exclude your pension information as well; we will gather this in the next step.

Your Estimated Monthly Income from Your 401(k) and IRAs: $____________________.

3. Your pension. If you are eligible for a traditional pension your plan will be able to provide you an estimate of your expected monthly benefit. But here too you must make some choices as to how you want to receive your benefit. Many pension plans allow you to choose between taking a lump sum payout when you retire or opting for an ongoing payment-typically monthly-once you retire. The ongoing payment is called an annuity.

I highly recommend working with a trusted financial advisor to decide whether a lump sum or monthly annuity makes sense for you; there are many variables to consider. An advisor can offer expert guidance, but this decision will have a significant impact on your retirement security. That is why you must take responsibility and ownership of the decision.

Factors to consider if you opt for a lump sum payout: * If you take a lump sum payment, I strongly recommend you do an IRA rollover that will transfer the money from your pension into your own retirement IRA at a discount brokerage. If you take the lump sum in a check, all that money will be considered income paid to you for the year and you will owe tax on all of it. That could be a huge bill. It is far better to do the rollover; you owe no tax until you start to make withdrawals from the IRA.

* If you do not need to live off your pension and you want to leave this money to your heirs, you would be better off taking the lump sum and doing a rollover rather than opting for the annuity payment. But please understand that you will be in charge of deciding how to invest that money once it is in the rollover IRA. And I want you to be extra careful here. The sad truth is that some unscrupulous advisors recommend inappropriate investments for the lump sum that generate big commissions for the advisor. If you want professional advice on how to invest your money, please work with a fee-only financial advisor. That means you pay a flat fee. This is a much better setup than working with a commission-based advisor, who will be paid based on what products he sells to you. Recommendations from friends and colleagues are always a smart way to find a trusted advisor; you can also locate fee-only advisors at the napfa.org website. (I also offer investing advice for retirees in the next chapter.) website. (I also offer investing advice for retirees in the next chapter.) Factors to consider if you take an annuity: * If you want an ongoing monthly payment from the pension your employer will ask you to choose from a variety of payment options. The two most common types of pension options are: 1. Single life only. This will provide the payout to the retired worker. When that retiree dies, no beneficiary will receive a payout.

2. Joint and survivor. The monthly annuity will be paid to the retired worker, and a surviving spouse as well. You can typically choose a joint-and-survivor benefit that pays the surviving spouse 50%, 75%, or 100% of the employee's benefit. The lower the survivor benefit, the larger your monthly check. So if you opt for a 50% survivor benefit, your current monthly check will be larger than if you opt for the 100% survivor benefit.

* If you are married and you decide to opt for the annuity payout, I strongly recommend you choose the 100% joint-and-survivor benefit. This always elicits howls from couples who want the higher payout that comes from a 50% or 75% survivor benefit. But carefully think this through with me: If the pension will be a large part of your retirement income, could the surviving spouse live comfortably if the pension payment were cut by 25% or 50%? Remember, your spouse will also likely have less Social Security income at that time; if both of you were drawing Social Security checks, when one spouse died the survivor would be ent.i.tled to the higher of the two checks, but not both. If at that time they also lost 50% of the pension that you were getting that would make it very very rough unless you had serious sums of money. Choosing the 100% joint and survivor is a smart way to ensure the surviving spouse will have as much income as possible.

* If you decide you want to receive a monthly income check, please take the annuity directly from your pension. Do not let a financial advisor convince you to take the lump sum in a rollover that he can then invest in an annuity for you. The annuity from your employer will be a fixed guaranteed payment. An advisor can sell you an annuity that does the same thing if you take a lump sum, but in my experience many of the annuities sold by advisors have high fees, and sometimes you are steered into an annuity where your payment will vary based on the performance of investments. I think it makes more sense to go with the known rather than the unknown: Stick with the guaranteed fixed annuity from your employer.

* I also want you to have your antennae up for any advisor who tells you to take the higher single-life-only benefit and then use the extra amount of the payout to purchase life insurance that the survivor would receive. I don't like that advice at all. It's an opportunity for the advisor to sell you an expensive life insurance policy that no doubt earns him a large commission.

A note on pop-up provisions: Some pensions offer a provision that goes like this: If the spouse dies before the employee, the employee may be able to switch (pop up) to a higher pension payout. This is another issue to discuss with a fee-only financial advisor. Some pensions offer a provision that goes like this: If the spouse dies before the employee, the employee may be able to switch (pop up) to a higher pension payout. This is another issue to discuss with a fee-only financial advisor.

COMPARING THE LUMP SUM TO THE ANNUITY.

To help you create an apples-to-apples comparison, let's see how much monthly income you might be able to withdraw from your lump sum and compare that to the monthly annuity option: 1. Take the amount of your lump sum that you could roll over into an IRA and multiply it by 4%. This is what you could afford to initially withdraw annually from your rollover without having to worry about running out of money if you were to live a long life.

Enter that figure here: $____________________ 2. Enter the annual amount of the annuity you could receive. Choose a 100% joint-and-survivor option if you are married, or the life-only if you are single.

$____________________.

I think you will be surprised to see that you will be getting considerably more by taking the annuity. That said, one important consideration is that most annuity payouts do not include an inflation adjustment: The payout you receive in year 1 will be the same as year 5, year 10, and so on. If you took the lump sum and invested it wisely you would have the opportunity for gains that would effectively allow you to keep pace with inflation. That is another factor a financial advisor can help you weigh.

Your Estimated Monthly Pension Annuity or Annual Income from Your Rollover IRA: $____________________ $____________________ Is Your Pension Safe?It is no secret that some pensions-both private and public-are facing financial challenges. But I want you to understand two important points: It is highly unlikely that any public or government pension will change the benefit formula for anyone near retirement. The rules, if they change, would affect new employees; there will likely be a grandfather clause for current employees, especially those near retirement age.If you have a private-sector pension, you may wonder what happens if your company goes bankrupt or it can't fulfill its pension obligations. Please understand that the money your firm has in its pension accounts is kept separate from its other operations. And the plan is required to report each year whether it has enough money to pay its future obligations. This is called its "funded status." You have a right to receive an annual statement showing your plan's funded status. Request a summary plan description (SPD) to find this information.So let's say your plan is in fact underfunded. Time to panic? No. Check the SPD to confirm if the pension plan is covered by the Pension Benefit Guaranty Corporation (PBGC). Most plans are. This is a federal agency that guarantees the payments for member firms. Its job is a lot like the FDIC for banks or the NCUA for credit unions: They step in and cover payments when member firms fall into trouble and can't make their pension payment.Just as with FDIC or NCUA insurance, there are limits to what you can receive from the PBGC. If you are already receiving a benefit from your pension, the PBGC limit is set by your age at the time it took over your plan. In 2011 the maximum monthly benefit for someone age 65 is $4,500; for a joint-and-survivor benefit the maximum payout is $4,050. If you are under age 65 the PBGC benefit will be lower than those amounts; if you are older the maximum will be higher. At the PBGC website (www.pbgc.gov) there is a table of maximums based on age. If your plan is taken over by the PBGC before you retire, your maximum benefit will be tied to the age at which you begin to receive your benefit.The bottom line is that even if you are concerned about your employer's future, as long as it is part of the PBGC and your expected payout is below the agency's limits, you should rest easy.

Now let's add up your various sources of retirement income.

Your Total Estimated Monthly Retirement Income:

Social Security $____________________ $____________________.

Your investments $____________________ $____________________.

Your pension $____________________ $____________________.

Other sources of income (rental properties, etc.) $____________________ $____________________.

Your total estimated monthly retirement income before tax $____________________ $____________________.

Please remember that any money you withdraw from a traditional IRA or 401(k), as well as pension payouts and Social Security (to a limited extent based on your overall income), is taxed as ordinary income in the year it is paid. Federal income tax rates vary from 10% to 35% depending on your total income, and some states tax retirement income as well. Just keep in mind that the figure above is going to be lower once you settle your tax bill.

ONCE AGAIN, IT IS TIME TO STAND IN YOUR TRUTH.

Now compare this figure to your current expenses-the figure you arrived at in Cla.s.s 2, when you used the expense tracker tool on my website. Of course we need to adjust your current expenses for inflation. You can use the compound interest calculator in The Cla.s.sroom at my website to get a rough estimate. In the Initial Investment box input your current annual expenses. Leave the Monthly Addition box empty and then for the interest rate plug in 4%. That is actually slightly higher than the long-term inflation rate over the past few decades, but I think given what is going on in our economy and with our fiscal deficit we could in fact see above-average inflation in the coming years. Finally, input 10 years past the date you expect to retire. Why so long? Well, if we just plan to the date you retire we won't know what your expenses might be down the road in retirement.

Note: if you plan to pay off your mortgage before you retire, remember to deduct that current expense from your calculation. if you plan to pay off your mortgage before you retire, remember to deduct that current expense from your calculation.

Okay, now you have a rough idea what your expenses might be in retirement. I hope you're smiling because your expected retirement income is plenty to cover your antic.i.p.ated expenses. But if that's not the case, and you see a shortfall, please do not panic. You have time to figure this out. That's why we are doing this exercise now, in your 40s and 50s. You have 15 or more years to make up ground. It can also help you focus on some priorities, such as working longer and delaying when you begin to draw Social Security. And perhaps you might recognize that my advice to focus on your retirement rather than saving for your child's college costs makes a ton of sense.

Or let's take a different approach: Maybe your next few vacations are to different parts of the country-or the globe-where the cost of living is lower than where you live today. Start scoping out possible places you might consider retiring to. There's no pressure; just make this an enjoyable adventure where you explore your options. Now is the time to do that exploring and planning. I am confident you can indeed reach your new retirement dream, but we are committed to standing in the truth that there may be some adjustments necessary between then and now to get you there.

Next I want to discuss one more important way you can increase your retirement security: Save more, and save smart.

LESSON 5. SAVING MORE, AND INVESTING STRATEGIES IN YOUR 50S SAVING MORE, AND INVESTING STRATEGIES IN YOUR 50S.

Obviously, one of the surest ways to improve your retirement picture is to save more over the next 10 to 15 years. In fact, the annual contribution limits for your 401(k) and IRA savings are higher once you turn 50. In 2011: - 401(k)s: If you are at least 50 years old, you can contribute $22,000. The maximum for younger employees is $16,500. If you are at least 50 years old, you can contribute $22,000. The maximum for younger employees is $16,500.

- IRAs: If you are at least 50 years old, you can contribute $6,000. The maximum is $5,000 for younger savers. If you are at least 50 years old, you can contribute $6,000. The maximum is $5,000 for younger savers.

I think it is a smart time to consider saving more in those accounts. Don't expect HR or your 401(k) plan sponsor to send you a note on your 50th birthday informing you of this great opportunity. It's up to you to take the initiative here. My one caveat, as you have already learned, is that if you currently live in a home that you intend to retire in, and you can honestly afford to stay in that home, then it can make sense to divert some of your retirement savings to accelerate paying off your mortgage.

HOW TO INVEST SMART.

It is so interesting to me that people in their 50s tend to take extreme positions when it comes to investing their retirement money. At one end of the investing spectrum are the people who realize they are way behind in their savings. Therefore they decide they should put all their money in stocks; they think that is the only way to have a shot at the big gains they need to make in order to ama.s.s what they want by their targeted retirement date.

At the other extreme is the conservative bunch. They think that because they are retiring in 10 or so years they can't afford to own any stocks. After watching what happened in the bear market that began in 2008, they feel it would be a huge mistake to risk having any of their retirement savings lose value.

The truth is that neither camp is correct.

It was very frustrating to me in the wake of the 2008 financial crisis to see people in their 50s sh.e.l.l-shocked that their portfolio was down 40% to 50% or more. The only way that could have happened was if their portfolios had been 100% invested in stocks. If they had owned a more appropriate mix of stocks and bonds, the losses, while still steep, would have been far less devastating. While the S&P 500 stock index lost 37% in 2008, the leading index tracking the bond market gained 5% for the year. Someone who simply had an even split between stocks and bonds might have come out of 2008 with a c.u.mulative loss of 16%, or less than half of what so many of you told me you experienced.

Now I realize that the 16% loss may not sound so good either. Because you are in your 50s you feel as if you don't have time on your side, so you can't afford to have any losses in your portfolio. I agree-as you near retirement you should definitely become more cautious with your investments, favoring bonds over stocks. But that does not mean you can afford to completely shun stocks. Remember, a 65-year-old today will on average still be alive into his or her 80s. That means anyone in their 50s today must consider that some of their retirement savings will not be used for another 25 to 30 years, and possibly longer. It is a mistake to look at your retirement date as your investing stop point. You must consider how long you will need your money to support you. In your 50s you should invest with the awareness that some of that money will not be touched for another 25 years at least. And that raises a potential problem if you were to prematurely move all your money into bonds or cash. The long-term trend tells us that those investments, while earning a steady return, won't typically earn enough to keep pace with inflation.

What's inflation got to do with this? Well, if you do live into your 70s and 80s the price of things you need and want to buy-from groceries to medications-will be higher. If your investments haven't grown at a pace that keeps up with inflation you will have to use more of your savings just to maintain your standard of living, and that raises the risk of running out of money too fast. The solution is to keep a portion of your money invested in stocks, which over the long term have the best potential for producing gains that beat the rate of inflation.

Have the Right Mix of Stocks and Bonds So what's the right mix in your 50s? Well, I will be the last person to tell you there is any single right formula. You must decide for yourself. If you have so much money saved up that you are confident that you could keep 100% of your money in CDs and bonds and still be able to pay for everything in your 80s and beyond, then that is a wonderful truth! But the reality is that for most of you, you must think about the rising cost of things 20, 30, or 40 years from now. And that makes it wise to keep some of your money in stocks. A rule of thumb that is actually very sound is to subtract your age from 100. So at age 55 you might have 45% invested in stocks. At age 65 you might have 35% invested in stocks. (Every few years you should be rebalancing your retirement portfolios so you have less in stocks and more in bonds.) This rule of thumb is a guideline you can tweak to fit your emotional truth. If you want a little more or a little less in stocks, that is for you to decide. I just ask you to avoid any extreme allocation: 100% in stocks is way too risky. And unless you know for sure that you have ample savings so you don't have to worry about inflation, 100% in bonds and cash is too risky as well.

MAKING THE MOST OF WHAT YOU HAVE.

A critical step in building your new retirement dream is to focus on how to maximize the money you have in all your retirement accounts. And if you have changed jobs through the years and have left behind old 401(k)s at former jobs, you are likely dropping the ball here. What you need to focus on is that once you leave a job, whether voluntarily or not, you no longer have to keep the money invested in your former employer's 401(k). You have the option to move your money out of the 401(k) and into what is called a rollover IRA, where your money will continue to grow tax-deferred. I believe that is often the smartest move you can make. I discussed IRA rollovers in the previous chapter about planning for retirement, so if the concept is new to you, I would encourage you to go back and reread that section. There you will learn where to open an IRA rollover account and whether to choose a traditional IRA or a Roth IRA.

One of the reasons I recommend rolling over old 401(k)s into one account at a single brokerage, and consolidating your IRAs as well, is so you have an easier time looking at the entire retirement pie you have. It will be infinitely easier for you to make sure your overall allocation of stocks and bonds/cash makes sense if you have everything under one roof; most discount brokerages and no-load mutual funds have free online tools that will produce easy-to-grasp pie charts that can show you what you've got. And if you are indeed rolling over old 401(k)s you will also benefit from the wider array of investment choices you have with an IRA at a discount brokerage, including investments in individual bonds and all sorts of specialty ETFs, such as precious metal and other commodity-based sectors.

And the reality is that by the time you are in your late 40s or have segued into your 50s, you-and your spouse or partner-no doubt have a mix of different accounts. I bet there are a few traditional IRA accounts, maybe a Roth IRA or two, a handful of "old" 401(k)s from past jobs, along with the retirement plan from your current employer.

Note: If you have old 401(k)s that include company stock, I recommend you work with a fee-only financial advisor before you roll over any of your 401(k)s into an IRA. There is a special way to handle your company stock that is in a retirement account-referred to as net unrealized appreciation (NUA)-that can help you boost your after-tax return on that stock. At my website I have more information about the NUA rules for handling company stock in an old 401(k). If you have old 401(k)s that include company stock, I recommend you work with a fee-only financial advisor before you roll over any of your 401(k)s into an IRA. There is a special way to handle your company stock that is in a retirement account-referred to as net unrealized appreciation (NUA)-that can help you boost your after-tax return on that stock. At my website I have more information about the NUA rules for handling company stock in an old 401(k).

A trusted financial advisor can also help you sort through whether it makes sense for you to convert some of your retirement savings into a Roth IRA rollover. Beginning in 2010, anyone, regardless of income, can do a Roth conversion on all or part of their IRA accounts, including money being rolled over from old 401(k) accounts. You will owe income tax at the time you convert the money, and the tax bill is based on a convoluted formula that includes more than simply the amount of money that is being converted.

That's why you want to work with a financial advisor or tax advisor who has experience with all of this. An added complication is that the amount you convert in any given year is added to your taxable income for that year, and that could b.u.mp you into a higher tax bracket. So one consideration is spreading out your conversion over a few years to make sure that no single-year conversion pushes you into a higher tax bracket. Again, that's why you want to have a pro run the numbers and walk through your options with you.

The advantage of doing the conversion today is that once your money is in a Roth you will be able to use it in retirement without owing any tax whatsoever. Moreover, you will not have to take a required minimum distribution from a Roth account (explained in greater depth in the next chapter); so if you don't need to tap that money for living expenses it can stay growing for your heirs.

After you consolidate your accounts (other than your current 401(k)s) under one roof, you can more easily consider a few strategic moves: Focus on the Entire Pie Your goal is to make sure that the sum of all your retirement a.s.sets is invested in a way that matches your long-term allocation strategy. So, for example, if your goal is to have 60% in stocks and 40% in bonds/cash, then your focus should be for all the various accounts in the aggregate to give you that 60/40 split. But that does not mean every single account must have the same split between stocks and bonds. You don't need your Roth IRA to be 60/40 and your 401(k) that you have at your current job to be 60/40. All that matters is that the total sum of all your money divided between stocks and bonds/cash lands at 60/40 (or whatever you have decided is the right truthful mix for you).

And one smart move to consider is how you are investing the money in your current employer 401(k). Of course you are limited to the investment choices offered in the plan, but because you are taking a holistic approach to your overall retirement pie, a smart move can be to pile your 401(k) savings into the least expensive option. I explain this in the next step.

Focus on the Cheapest Investment Offered in Your Current 401(k) I want you to find the lowest cost mutual fund in your 401(k). As I explained in the previous chapter, every mutual fund has what is called an expense ratio. This is the annual percentage of your a.s.sets that is deducted from your investment each year to pay the mutual fund. That said, you don't really see the expense ratio as a line-item expense in your annual statement. It's levied in a somewhat invisible way, as it is deducted from each fund's gross return before the net return is credited to your account. For example, let's say a stock mutual fund has a 1% annual expense ratio and its gross return is 6%. That means your account will be credited 5% after the 1% expense ratio is siphoned off to pay the fund's fees.

I know this is a bit dry to think about, but it is very profitable. The expense ratio you pay can have a huge impact on your retirement security. As I noted in the previous chapter, I think it is prudent to set our expectations for future returns in the vicinity of an annualized 6%. As some of you may remember, that's one-third the rate of return for stocks during the 1990s, when in fact the S&P 500 grew at an annualized 18% rate for the decade. Let's imagine you owned shares in a mutual fund in the 1990s that had an annualized gross return of 18%, and the fund charged a 1% expense ratio, so your net return was 17%. Now let's a.s.sume you own the same mutual fund today and it still charges that 1% annualized rate of return. Today's truth suggests that future returns might be more like 6%. So that would mean your net return would drop from 6% to 5%. That 1% now eats up a bigger portion of your return; it is about 16% of the 6% return, whereas a 1% fee represents just 5% or so of an 18% return. Fees are always important, but you can see how they become even more important when your expectations for future returns are lower. You can't afford to waste any money paying a higher expense ratio than necessary. And mutual funds offered within 401(k)s can have wildly different expense ratios; some stock mutual funds may charge 1.5%, while others might charge just 0.20%, or even less. One of the best ways you can make money in the coming years is to reduce the amount you are paying in that fee.

That is why I want you to locate the fund in your current 401(k) plan with the lowest annual expense ratio. If that fund owns securities that you want to own, I would consider pouring the bulk of your money into that one fund. Remember, you don't need this specific 401(k) to have a mix of investments; all that matters is that your overall portfolio-of all your various retirement accounts-makes one cohesive pie.

Here's an example: Let's say you have a total of $250,000 in all your retirement accounts, and the 401(k) at your current employer accounts for $100,000 of that total. Now let's a.s.sume that you want to keep 50% of your money in stocks and 50% in bonds/cash. So that's $125,000 you have earmarked for stocks. If your 401(k) has a great low-cost stock mutual fund, you could put all of your account in that one fund. Then with the remaining $150,000 in your consolidated accounts (you will likely have more than one, since traditional and Roth accounts must be kept separate) you will want to put another $25,000 in a stock mutual fund or ETF. That brings your total stock investment to your target of $125,000. The rest can be invested in cash and bonds. Your total pie adds up to 50% stocks and 50% bonds, but you are strategically taking advantage of the lowest-cost fund within your 401(k).

I really like this approach because it is a great way to avoid ever having to invest in bond funds in your 401(k). I do not like bond funds at all-see this page this page to get my reasoning-and prefer that you invest directly in individual bonds, such as Treasuries. This strategy makes it easy to steer clear of bond funds in your current 401(k). to get my reasoning-and prefer that you invest directly in individual bonds, such as Treasuries. This strategy makes it easy to steer clear of bond funds in your current 401(k).

I want to be very clear here: If the majority of your retirement savings is in this 401(k) account, you obviously should not shift all of it into one fund. If your 401(k) is in fact your whole pie, then this must be a diversified pie. For your stock portion I recommend you keep 85% in U.S. stock funds. If your plan offers a fund with the name Total Stock Fund, that can be a great option, as it invests in a mix of large established firms, mid-size firms, and small firms. So-called large cap stocks tend to offer steadier returns-and often dividends-while stocks of smaller companies typically offer more growth potential. If your plan offers an index fund with "500" in its name, that means it focuses on the large company stocks in the Standard & Poor's 500 stock index. That's a find choice as well, and you can also invest in a mid-cap and small cap fund offered in your plan. As a guide for how to split that money among the different funds, you might follow how a Total Stock index fund allocates money: about 70 percent is in large caps, 20 percent in mid-caps, and 10 percent in small caps.

The remaining 15% of your stock portfolio should be earmarked for international stocks. There are two broad ways to invest in international markets: developed countries, such as j.a.pan and most of Europe, and emerging markets, such as China and India. My recommendation is to have most of your international stock money invested in developed markets and reserve just 5% of this 15% slug for emerging markets. Fast-growing emerging markets are more volatile. So you don't want to overload your portfolio with exposure to them. And keep in mind that those those big multinational blue-chip U.S. stocks that make up 85% of your 401(k) stock allocation do a lot of business selling their goods and services into the emerging markets. So your 401(k) will be tied to the fortunes of emerging markets through those U.S. firms.

Locate the international fund offerings within your 401(k). If your plan has one fund, well, you're good to go. But if you see two (or more) international funds, that means one of them focuses on developed markets; it will often have EAFE EAFE in its name. That's a tip-off that it is a fund focusing on developed markets in Europe, Australasia, and the Far East. The other offering probably focuses on emerging international markets. in its name. That's a tip-off that it is a fund focusing on developed markets in Europe, Australasia, and the Far East. The other offering probably focuses on emerging international markets.

Before you put 10% of your stock portion in the developed fund and 5% in the emerging markets fund, I recommend you take a look at the portfolio of the developed fund. While the bulk of its a.s.sets will be in developed markets, you may find that a fund has 10% or 20% invested in emerging markets. If that's the case, then you can just invest in that fund and forget about adding the emerging markets fund as well. Your 401(k) plan should provide you easy access-online or over the phone-to the latest available portfolio mix of each fund. If not, go to morningstar.com. Type the ticker symbol for your fund into the search box (it is a five-letter string of letters ending in X that will be listed alongside a fund's name in your 401(k) material). Then click on the portfolio tab, scroll down, and you will see a breakdown of how much of that fund is invested in developed markets and how much is in emerging markets.

BEST INVESTMENTS OUTSIDE YOUR CURRENT 401(K).

Let's talk about the right investments for your rollover accounts as well as any regular taxable accounts. The advice here is exactly the same advice I gave to younger investors in the previous cla.s.s. For retirement a.s.sets outside your 401(k), you have the freedom to choose among the thousands of investments offered by the discount brokerage you use. That includes mutual funds, individual stocks, and individual bonds, as well as exchange-traded funds (ETFs). Please go to this page this pagethis page for my investment advice. for my investment advice.

BOND INVESTMENTS.

For the bond portion of your IRAs and any taxable accounts, I recommend you invest in individual Treasury bonds. Because the U.S. government backs these you do not have to worry about default risk. If you were to invest in corporate bonds you would need to build a diversified portfolio of 10 or more issues, and unless you have $100,000 or more to devote to bonds, the commission you would end up paying would be too expensive.

The discount brokerage where you keep your IRA should offer the ability to buy Treasury securities. Just remember to stick with shorter-term issues-maturities of five years or less.

* No Target Funds Allowed At this stage of your life I am going to put my foot down and insist that you do not rely on target retirement funds. It's for the very reason I mentioned earlier: I do not like bond funds in any way, shape, or form. And a target retirement fund when you are in your late 40s and 50s will in fact have plenty invested in bond funds. It varies by each different fund company but it might be 30% to 60% or more of the target fund's a.s.sets. In the previous cla.s.s I told younger adults that if they didn't think they had the discipline to create their own portfolio of mutual funds among the offerings in their 401(k), I would allow them to opt for a target retirement fund because at a young age a target fund wouldn't have much invested in bond funds. But as you age, a target fund's glide path-that's the term used to describe how its mix of different types of investments changes over time from higher risk to lower risk-will naturally shift into more bond funds.

You do not have my permission to stay in a target-date retirement fund once you are in your 50s. Nor do I want you using a target retirement fund for your rollover and taxable accounts. Time to stand in your truth. You are here in this cla.s.s because you have a dream to retire. And to retire knowing you will be financially secure. That is your children's dream as well. The more you can build true financial security for your later years, the less likely you will need your children to step in with financial support.

No matter how unfocused you may have been on making the smartest retirement investing choices in the past, you have reached a crossroads moment. You are standing at an important intersection: You can continue down the same road of not paying much attention; if you choose that path, there is no way to say whether you will in fact realize your retirement dreams. Or you can choose to become actively engaged in managing your retirement accounts and take control of steering your retirement to success. The choice is yours; which way will you go?

I understand that some of you may feel too overwhelmed to handle all the decisions on your own. There is nothing wrong with wanting to hire help. But I ask you to think of a financial advisor as a coach who is there to offer expert advice and help devise a strategic game plan. But you must be an active partic.i.p.ant in the process as well. Hiring a financial advisor is not the end of your work. There is no end here. This is your retirement we are talking about, this is your money, not anyone else's money. As I have said so many times: What happens to your money in the coming years affects you and you alone. So no matter how talented and smart an advisor is, if you blindly hand over your money and the decision making to someone else, that is a failure to stand in your truth. Hire a financial advisor to help you help you make the right choices for your future. make the right choices for your future.

In previous books I have offered detailed advice on how to identify a solid financial advisor. At my website you can read the steps I recommend you take when interviewing possible fee-only advisors. But I do want to be very clear here: Fee-only advisors are in fact the only financial advisors you are to ever work with. Fee-only advisors charge a flat hourly fee, or if they oversee your investments, they will charge a small percentage of your total a.s.sets. But they do not make any money through sales commissions on the investments you buy, sell, and own.

An advisor who is reliant on commissions has an inherent conflict of interest. To get paid, an advisor who relies on commissions or trade-based fees needs you to buy certain investments to get paid. So that raises a question: Are you being advised to make an investment or trade because it is the right and smart move for your future, or because it generates a commission for the advisor? You should never put yourself in a situation where you have to ask yourself that. Working with a fee-based advisor is the way to go.

I hope what I am about to say will be ridiculously obvious to all of you, but history tells me this is an age-old problem: A referral from a friend or family member is not all you need to find a financial advisor. Bernie Madoff had great word of mouth for decades. Gather leads from people you admire and trust, and then do your own legwork to verify that the advisor is not only legit, but is someone you feel understands you and your financial situation. In the second cla.s.s of this book I discussed my belief in trusting your gut-if something does not feel right to you, you must honor that. You are never to take a leap of faith, particularly when it comes to choosing someone who will be instrumental in the handling of your finances, simply on the basis of what someone else says. You have to get in there face-to-face and a.s.sess the situation for yourself.

LESSON 6. PLAN FOR LONG-TERM CARE COSTS PLAN FOR LONG-TERM CARE COSTS.

One of the most important decisions to make in your 50s, one that can have a huge effect on your retirement years, is whether to purchase a long-term care (LTC) insurance policy. Long-term care insurance helps pay for your care if you can no longer take care of yourself without a.s.sistance. LTC insurance can pay for someone to help within your home and it can also be used to help with nursing home costs. I think buying an LTC policy now is a seriously smart move to make because the policy will be much more affordable. However, you will once again have to factor the cost into your annual expenses for years to come-possibly all the way to age 84. Why 84? That is the age when people typically need this type of care. It will do you no good to purchase a policy now, pay for it for ten years, and then have to give it up in retirement because you can't afford it. No one wins in that situation except the insurance company. But if you can afford it, I would urge you to buy it. I remember suggesting to my mother that she buy a long-term care policy about twenty years ago. I even told her I would pay for the premiums, but she refused. She said she would never need such a thing. She even refused to sit for an exam. This year my mother, G.o.d bless her, turns 96. Her expenses in an a.s.sisted living facility are approximately $20,000 a month. If my mom did not have my help in covering these costs, I cannot imagine the life she would be living right now. So know that this is a subject I take very seriously-and so should you.

WHEN TO BUY.

In the past I have recommended you wait until age 59 to purchase an LTC policy. Given recent changes to these policies, I now say that is the latest you should consider making a purchase. Your age at time of purchase and your health status determine your premium cost. If you purchase a policy before age 61 you will likely pay a premium of less than $2,500 a year. Furthermore, what you want to avoid is being turned down outright because of a health issue; the older you are when you apply, the more likely you are to have a preexisting condition that could impact whether you are able to buy a policy, or the cost of that policy. It's just a fact of life that medical issues increase as we age. That is why I recommend you make your LTC decision no later than 59.

Go to The Cla.s.sroom at www.suzeorman.com:I have more information on how health issues can impact your ability to qualify for LTC insurance.

THE FINANCIAL CASE FOR BUYING LONG-TERM CARE INSURANCE.

The fact that on average we are all living longer creates a bit of a good news/bad news situation for your retirement planning. A longer life span increases the likelihood that at some point you may no longer be able to take care of yourself.