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Jun 27 2011 12:00AM


I need some stream of money in retirement and want to sell some stocks in my mutual funds to place in a money market and withdraw from that. How do I choose which stocks to sell and when should I sell them?


FPA member Karen Pike, CFP®, CPA, MBA, offered the following advice.

  1. Bucket your cash and investments. Determine what your cash needs will be over the next three years, four to seven years, and beyond seven years. 
  2. Your cash needs for the next three years should be maintained in a secure investment, like "cash." Also, there are other types of investments that can provide a guaranteed source of income, too, and may even be more suitable for your situation. 
  3. Determine what your risk tolerance is. For example: conservative, moderately conservative, moderate, moderately aggressive or aggressive. 
  4. Your answer to question three will help determine how you should allocate your investments that will be needed in the intermediate (four to seven years) and long-term (beyond seven years) buckets. 
  5. Each investment bucket should be invested in a diversified manner. For example: some bond funds (short-term, intermediate, high yield, international bonds, etc.), some large cap funds, some mid and small cap funds, some international funds, etc. In other words, your goal should be to maintain a risk adjusted balanced allocation in accordance with your own risk tolerance. 
  6. Consider your income taxes. For example, if these mutual funds are held in a non-qualified/taxable account, then you will only be taxed on capital gains. However, if these mutual funds are held in a qualified account/tax-deferred account, like an Individual Retirement Account (IRA), then 100 percent of every sale will be subject to income taxes at ordinary tax rates. Also, don't forget state income taxes.

“I'm sorry that I cannot give you a specific answer to your situation without more information,” Pike said. “Your question is actually not a simple one. The most difficult part of retirement planning is properly planning for distributions.” 

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