Get Ready to Retire

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Investing for retirement is like going on a long road trip. At first, it seems like you're not making any progress at all. But once you get going, the miles fly by. When you get where you're going, it feels strange to no longer be flying down the highway at top speed.

Getting ready for retirement feels a lot like that. After spending most of your career investing aggressively in stocks and other high-risk, high-return investments, you'll have to think a little differently during your pre-retirement years. As you'll discover in this month's edition of the Fool's Rule Your Retirement newsletter, which comes out today at 4 p.m. ET, it's crucial to take on some new tasks during the three to five years before you retire.

One of those shifts involves changing your investment strategy. Instead of focusing on doing whatever it takes to build up your nest egg as quickly as possible, you'll need to use those last few years to start gathering the cash you'll need to cover your living expenses after you retire.

You need income
The most difficult adjustment you'll have to make when you retire is losing your paycheck. That source of ready cash every month has kept you from having to tap your investment portfolio over the years, letting you buy stocks aggressively for the long term in order to maximize total return. But once you retire, you'll need to replace at least a big part of that income.

The problem is that many of the stocks you've invested in for growth don't really provide much income. Take a look at some growth stocks with good track records:

Stock	5-Year Average Return	Dividend yield
Activision (Nasdaq: ATVI)	48.9%	0.0%
Chesapeake Energy (NYSE: CHK)	39.1%	0.7%
EMC (NYSE: EMC)	23.2%	0.0%
NYSE Euronext (NYSE: NYX)	59.7%*	0.9%
Transocean (NYSE: RIG)	43.4%	0.0%

Source: Morningstar.
* NYSE Euronext return is a three-year average.

Many high-performing (growth) stocks don't pay dividends at all, while others pay a pittance. That's not going to help you get your bills paid.

Where to get investment income
There are plenty of ways you can branch out to get more income from your portfolio. If you've been using target retirement funds, you probably already have some of your money allocated to bonds. But with interest rates low and falling, bonds won't be enough to take the place of your income either.

Some stocks pay sizable dividends that can provide income. But you have to be smart about high-dividend stocks to make sure those payouts won't disappear. Companies like Citigroup (NYSE: C) are facing cash crunches that have some investors fearing a dividend cut. And other choices, such as real estate investment trusts, carry their own risks. They won't provide the whole solution by themselves.

How much you need
The easiest way to generate the cash you'll need in retirement is to liquidate some of your investments in advance. That way, you don't have to worry about whether the market will go against you right when you need to sell. Aim to raise enough cash to pay for several years of expenses, but do so gradually during the last few years of your career. That way, market ups and downs should average out to give you a favorable sale price for your stocks and funds.

When you're figuring out how much cash you'll need, make sure to account for the regular income you'll have, both from your portfolio and from other sources like Social Security and pension payments. That way, you won't have a cash cushion that is too big, and will be able to keep more money invested in assets that will keep growing.

While getting used to the idea that you're about to retire may take some work, it's great when you have the finish line in sight. With just a few simple adjustments, you can get your finances ready to retire with you.

For more on how to retire in style, read about:

• Simple steps to help you invest smarter.
• How to make the most of Medicare.
• Whether your retirement portfolio is safe.