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By Jason Stipp and Christine Benz | 12-19-2013 03:00 PM

Prudent Tips for Your Portfolio Checkup

After another strong year in the stock market, investors should exercise discipline with respect to their withdrawal rate and portfolio allocations, says Morningstar's Christine Benz.

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Jason Stipp: I'm Jason Stipp for Morningstar. After a stellar year in the stock market what should investors be thinking about as they open their portfolios for their year-end checkup? Here to offer some practical tips is Christine Benz, our director of personal finance.

Christine, thanks for being here.

Christine Benz: Jason, it's great to be here.

Stipp: Investors are likely pretty happy as they're checking their year-end portfolios because the market has been up about 30% or so year to date, which is really just stellar performance. You have a few tips though for ways they can put everything into perspective, and of course, look ahead because the past is not a predictor of the future. The first step is to check your spending rate against what you expect it to spend, and this is important, of course, because those portfolios have to last us throughout retirement.

Benz: Right. For people who are retired, it’s really important to do that wellness check to make sure that the amount that you're withdrawing in a given calendar year is within the realm of reasonableness. There are a lot of different ways to calculate and think about spending rates. A lot of people use what’s called the 4% rule, and that means that at the outset of retirement, you take 4% of that balance and you inflation-adjust it in each year thereafter.

So, if you’re using that method, you'd want to look at the prior year's withdrawal dollar amount and give yourself perhaps a small inflation adjustment. Inflation has been pretty tame this year so keep that muted. But make sure that you’re staying within that band, if that's the way that you're going about calculating withdrawal rates.

If you’re using a fixed-percentage withdrawal rate, as I know a lot of Morningstar.com readers tell me they do, you would want to go back to your end-of-2012 balance and look at that percentage and check how it stacks up relative to that dollar amount.

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