Crowe's portfolio needs just a few adjustments

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Ruth Crowe should have little problem meeting her retirement goals -- provided she keeps her expenses down when she retires, says Peggy Ruhlin, a financial planner in Columbus, Ohio.

Most of Crowe's money is with TIAA-CREF, which specializes in investment and retirement plans for teachers and medical and non-profit groups. Crowe should do just fine staying with TIAA-CREF, Ruhlin says. You probably won't see a TIAA-CREF fund at the very top of the performance charts, she says, but TIAA-CREF's funds tend to have solid performance, low risks and low fees.

Crowe could take her retirement money out of Iowa State's retirement plan, but she's better off staying with them, Ruhlin says. Crowe can choose among the full smorgasbord of TIAA-CREF funds in Iowa State's plan.

The biggest problem with Crowe's portfolio: She has no small-company stock funds. For an aggressive investor, that's like having chili without the chili powder. Over long periods, small-company stocks often deliver higher returns than large-company stocks.

Ruhlin says Crowe should trim her holdings in TIAA-CREF's large-company stock funds, bond funds and money funds and put $29,000 into TIAA-CREF Small-Cap Value fund and $20,000 into TIAA-CREF Small-Cap stock fund. Those moves would put 20% of her portfolio in small-company stocks.

Crowe also needs to add more international stocks to the mix, Ruhlin says. She has about $12,000 in international stocks now; she needs to bring that up to 20% of her portfolio. International funds add broad diversification and can fare well when the value of the U.S. dollar falls on the currency exchanges.

Can Crowe simply let her money sit and achieve her goals? Quite possibly. She wants to leave her money alone for 15 to 20 years, hoping it will grow to $750,000 to $960,000. If she wanted to produce $750,000 over 20 years, she'd need to earn about 5.8% a year. To generate $950,000 in 15 years, she'd need to earn 9.5% a year. "Both are doable, or at least possible," Ruhlin says.

Crowe can expect to live a long time, so she'll have to keep a stingy budget to make her money last. The average 65-year-old woman will live to nearly 87, according to the American Academy of Actuaries. About 41% of all 65-year-old women will live to 90.

Studies have shown that your odds of outliving your money are best if you withdraw 4% or less of your money in the first year of retirement. It's not much, but you'll be able to increase your withdrawals each year for inflation.

If Crowe reaches her goal of $950,000, she'll be able to withdraw $38,000 the first year. She'll also get Social Security, but it still won't be a large budget. Crowe is all right with that: "I've never had a lot of money; I just like to be comfortable." But she would like to travel, so she might want to start putting aside money for that once her business starts to take off.

One other caveat: Because she's self-employed, she'll want to look into disability insurance. The drawback now: You need income to get disability insurance, Ruhlin says. When Buster's Design Team starts hitting some home runs, Crowe should look into getting insurance to protect her -- and her business -- if she becomes disabled.

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