BOSTON (MainStreet) -- Even as baby boomers march into the ranks of the retired, many are behind the ball in preparing for that inevitability. Complicating matters has been a recession, market volatility and staggeringly low interest rates. More than 76 million baby boomers -- nearly 25% of all Americans -- are approaching retirement age in the next 20 years, making the transition from retirement saving to retirement spending. That shift from accumulation mode to a deccumulation phase is proving difficult for many. So much so that a recent survey by Schwab found that one-third of those who say they are just five years away from retirement have not even calculated how much income they will need in retirement. "Flummoxed" is how those same researchers described nearly half of these soon-to-be retirees when it comes to how to invest money for maximized retirement income. The findings may not come as much of a surprise to Carrie Schwab-Pomerantz, Schwab's senior vice president, whose focus on financial literacy issues has given her insight on, and concern about, street-level investing behaviors. The Schwab survey suggests that "while the vast majority of pre-retirees express feelings of optimism about their retirement readiness," their outlook may be either filtered through rose-colored glasses or masking how they really feel. One-third said they have not yet determined their essential living expenses in retirement and 64% say they have less than one year of cash savings available for living expenses during retirement. "A quarter of all Americans are retiring, and yet there hasn't been a lot of thought around decummulaton and maximizing income utilizing your various portfolios and income streams," Schwab-Pomerantz says. "It comes at a time when it's hard enough to save and build that portfolio, one of the most expensive things you'll ever do. There's so many aspects to decummulation, and we found that from our clients that coming up with a drawdown strategy for income was very complicated." "The bottom line is that transitioning into retirement mode is a very emotional time," she adds. "Saving for retirement is something most Americans know they have to do, but many people are confused, scared and literally frozen when it comes to flipping the switch from saving to withdrawing. Our data shows that people even just a year or two away from retirement don't know how to tap their savings effectively once they transition to retirement."

Schwab offers the following tips for tackling the need for steady, long-lasting retirement income: Review your situation.
Know how much money you've earmarked for retirement, where you keep it and how much, if anything, you want to leave to heirs. Maintain a year of cash.
Set aside an amount equivalent to what you'll need from your portfolio for at least a year. This is the money you'll use -- along with your regular sources of income -- to cover all expenses throughout the year. "One of the basic principles of finance is that you should have three to six months of cash set aside for your nondiscretionary expenses," Schwab-Pomerantz says. "Given the economy and volatility, it's also a good time to probably have more fixed income, maybe two to four years of liquid assets -- short-term bonds and CDs and so forth -- as part of your asset allocation, so that even if we never have to deal with another year of all-time lows you can weather the storm and not have to sell equities during those all-time lows." "Even somebody who is farther away from retirement should have that emergency fund in case they lose their job or have an illness," she adds. "You don't want to have to spend down any equities you have built up at their lows and you don't have to resort to a short-term loan where you might have to pay very high rates." Consolidate income in a single account.
When possible, you may want to deposit your regular sources of income into the account where you keep your year of cash. Or you might choose a similar type of account where funds can be easily transferred. According to Schwab's survey, 51% of respondents say they have four or more financial accounts, yet two-thirds are not planning to consolidate those into one account from which to withdraw their retirement income. People do have insecurity about placing all their financial eggs in one institution," Schwab-Pomerantz says, and this is particularly true of those with $100,000 or more in investible assets who tend to keep their accounts in multiple places. "The idea of consolidating accounts is so you understand how much you have, or would like to have," she says. "Hopefully you will have some tax-deferred accounts and some non-tax-deferred accounts, so there is a strategy around tax efficiency and growing your income tax deferred for a longer period of time. It's really a matter of simplifying your life so that you can focus on more complex things, like building your assets and finding a tax-efficient source of income." Match your investments to your goals and needs.
As you begin to rely on your investments for income, you may feel most comfortable investing heavily in income-generating bonds and CDs. But to counteract the long-term effects of inflation, you may need to keep a portion of your savings in growth-oriented stocks as well. Cover essentials with predictable income.
Divide your expenses into essential and discretionary categories and cover the essentials with predictable income sources. Don't be afraid to tap into principal. "One of the steps is to sort your expenses between essentials versus non-essentials and then have a draw-down strategy that uses your predictable income to cover for essentials, such as housing and utilities food," Schwab-Pomerantz says. "That predictable income can be interest off a bond or when a bond matures and you know when it's going to come." To supplement your predictable income sources such as dividend and interest income, Social Security, pension payments and rental income, consider drawing money from your retirement portfolio in this order: Start by drawing principal from maturing bonds and CDs; Take your required minimum IRA distribution if you are 70.5 or older; Sell overweighted assets in your taxable accounts; Sell from your tax-advantaged accounts starting with traditional IRAs, then Roth IRAs. "There are strategies to be had," Schwab-Pomerantz says. "If you have a traditional IRA versus a Roth IRA you might do one first versus the other, depending on what your strategy is." Rebalance annually to stay aligned with your goals.
Annual portfolio rebalancing is especially important when you're retired, not just during the accumulation phase. There's less time to recover from the potential losses of lackluster returns caused by a portfolio that has strayed from your chosen asset allocation. Stay flexible and re-evaluate as needed.
Things change. Situations change. Markets change. Priorities change. It's important to periodically revisit your portfolio asset allocation to stay aligned with your broader investment goals. Schwab-Pomerantz stresses that even for those five years away from retirement, there is still time to right their financial ship. "It's not too late," she says. "We are seeing, culturally, that baby boomers don't think of sitting in a rocking chair and knitting. They are thinking of second careers and working part time, still being viable and productive. So, there is time to build income. There is time to balance out that portfolio, get that cash stream up. Also, retirement today could be a 30-year endeavor, and you can do a lot in 30 years." "You don't get a lot of chances to change your retirement outlook," Schwab-Pomerantz adds. "The sooner you can start thinking about it and working on it, the better it will feel and the more choices you will have later in life." -- Written by Joe Mont in Boston. >To contact the writer of this article, click here: Joe Mont. >To follow the writer on Twitter, go to http://twitter.com/josephmont.

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