Turning 62: Research, caution help in handling lump sum

— -- Having your nest egg doled out to you in one lump sum can be rewarding. It can also be extremely risky. You'll need to figure out where to invest it. How much to withdraw each year. And whom to turn to for advice.

As baby boomers start to retire — the eldest are turning 62 this year — many will be grappling with these issues. They're the first generation whose principal retirement assets will come in one big chunk from 401(k)-type plans.

How do you make your money last as long as you do? There's no easy strategy. Try to do plenty of research. And avoid making hasty investment decisions that could deplete your hard-earned nest egg.

Future retiree Don Price, 61, of Harrisburg, Pa., looks forward to managing his money. Even though "I don't have a good knowledge about everything, I have a good knowledge about a little bit of everything," he says. As he nears retirement, his guiding principle for investment is: "I don't try to get rich quick. I just look for vehicles that give me a steady return."

Here are 10 other tips to help you manage your lump sum in retirement:

Don't be hasty about rolling over your money.

If you want to transfer money to an IRA when you retire but don't know how to invest it, move it to a money market fund at a discount brokerage firm until you decide on an appropriate mix of investments, advises Sheryl Garrett of the Garrett Planning Network, a network of independent financial advisers and planners.

Make sure you do a direct rollover of your money, also called a trustee-to-trustee transfer. It involves moving funds electronically to your financial provider of choice. That way, you minimize the chances of mistakes, which could lead to taxes on the distribution and a 10% early-withdrawal penalty.

Find a good financial adviser.

Start by checking websites such as the Garrett Planning Network, www.garrettplanningnetwork.com, and the Financial Planning Association, www.fpanet.org. Financial planners in the Garrett Planning Network offer fee-only, pay-by-the hour advice. That might be a good fit if you're a do-it-yourself investor and want a check-up or regular financial reviews. The Financial Planning Association offers planners for investors of all levels of financial sophistication.

Check a broker's background, free, at www.finra.org, the website of the Financial Industry Regulatory Authority, the self-regulatory body for brokers. You can also pay $49 for a report from Investor's Watchdog (www.investorswatchdog.com), a company started by Pat Huddleston, a former enforcement branch chief in Atlanta for the Securities and Exchange Commission.

Huddleston says his firm's report contains information not necessarily included elsewhere, including investment cases that were settled and expunged from a broker's record. The report also assigns a "safety rating" to a broker, based partly on the broker's disciplinary history.

Diversify your portfolio.

Make sure you're adequately diversified among stocks and bonds, as well as among large-, small- and midcap funds. And unless you're an experienced investor, stick to mutual funds, rather than individual stocks.

To figure the appropriate mix of stocks and bonds in your portfolio, some planners suggest a general rule: Subtract your age from 100 to get the percentage that should go into stocks or stock mutual funds. Under this formula, a 62-year-old would have 38% of his or her holdings in stocks and the rest in fixed income or cash.

You might want to tweak these percentages, though, to account for your risk tolerance, longer life spans and skyrocketing health care expenses. While stocks and stock funds carry the most risk, they also offer the greatest potential for gains in the long run.

Keep it simple.

You don't have to employ fancy investment strategies to succeed in managing your money. Investors can do well for themselves with a mix of top actively managed funds and low-cost funds that mimic the performance of indexes such as the Standard & Poor's 500, says Christine Benz, director of mutual fund analysis at Morningstar.

"A plain-vanilla portfolio can get you to your goals just as well as a fancy one," she says.

Control fees.

To keep your nest egg healthy, "managing whatever costs you can is absolutely crucial," Benz says.

Consider putting high-turnover funds — which buy and sell securities frequently, generating taxable distributions to investors — into tax-deferred retirement accounts, such as 401(k)s and IRAs. You'll be able to delay taxes on these investments until you withdraw the money. Also consider buying low-cost index funds.

Stick with a conservative withdrawal rate.

To minimize the risk of running out of money, financial planners generally recommend withdrawing no more than 3% to 4% of your portfolio a year.

Tap taxable accounts first.

By doing so, you can allow tax-deferred assets to grow longer, boosting your portfolio value.

Exception: If you have appreciated stock in a taxable account and plan to pass it to your heirs, avoid tapping that account. That way, when your heirs eventually withdraw the stock, they'll pay tax only on the stocks' gains beyond the price at which they received them.

Consider an income annuity.

Retirees can benefit from putting money into an income annuity, which offers the benefits of corporate pensions by giving you a stream of income, often for life. One strategy: Put enough money into an income annuity to cover fixed expenses, and invest the rest of the nest egg yourself, says Alicia Munnell, director of the Center for Retirement Research at Boston College.

Get quotes for income annuities at www.immediateannuities.com. And consider buying inflation protection on the annuity, so your payout will rise with inflation. "The reason you're buying an income annuity," notes John Ameriks, an economist at Vanguard Group, "is protection in those scenarios where you're going to live a lot longer than you expect. And if you live a lot longer, inflation is going to be a killer."

Check the insurer's bond rating — a sign of its financial health — at Moody's Investors Service (Moodys.com) or Fitch Ratings (FitchRatings.com).

Consider long-term care insurance.

Without adequate planning, the exorbitant cost of nursing home care can deplete your retirement portfolio. Middle-income consumers are most at risk of being squeezed, says Jack VanDerhei, a fellow at the Employee Benefit Research Institute and a business professor at Temple University. That's because they likely won't qualify for Medicaid, VanDerhei says, and might not be able to afford nursing home care.

You should consider buying such a policy well before you retire, because the cost rises as you age. But remember, you may pay for years for coverage you might not need.

Speak up.

If you feel your money is being mismanaged, complain to the financial adviser's supervisor. If you suspect outright fraud, notify state securities and insurance regulators and the Federal Trade Commission, at ftc.gov.