Q: we are retiring in a couple of months. We are selling off a family business and rolling over our retirement-plan funds into IRAs. We are concerned about losing our hard-earned money and running out of money before our time. Should we put all our holdings in safe CDs?

--P.S. Illinois

A: As you look into the future and calculate your personal cash needs, ask yourself, "How long will my money last?" and "How much money do we need to live out our dreams?" Once you've done this, you might realize there are several reasons you may need to keep your money in assets that can grow throughout your retirement.

REASONS FUNDS NEED TO GROW

1. Inflation takes its toll. Inflation is the annual increase in the price of goods and services. Even though today's inflation rate is in the 2 to 3 percent range, be aware that with every passing year, the compounding effect of yearly rates becomes important.

If you are paying $100 each week for groceries today, in 10 years, with 3 percent inflation, you'll be paying $134. At 5 percent per year, inflation will raise your weekly grocery expense to over $160.

No one can predict what inflation will be in the future. In 1979 and 1981, inflation was running between 10 percent and 13 percent. Over the last 10 years, it's been between 1 percent and 5 percent.

You can be conservative in your financial planning by using a higher number for the future inflation rate. You can also evaluate how inflation is really affecting you and your lifestyle, then use that data to project your situation. Your money has to keep growing in order to keep pace with inflation.

2. Taxes are forever.

Your tax bill is going to change throughout your life, and it is possible that tax rates may be higher in the future. No one knows exactly what your taxes may be 10 years from now, but it is certain that there will be taxes of some kind.

Some of the deductions and exemptions you claim today to reduce your tax bill may not be available to you later in life. For example, your home mortgage may be paid off, and your children or parents will no longer be dependents. Plan to keep your money growing so that potentially higher taxes won't limit the quality of your retirement.

3. Future expenses may be underestimated.

You may have been too conservative in your estimate of how much you will spend in retirement. You may find that you want to spend more money on travel or dine out at restaurants more often. You may need to replace your car or put a new roof on your house sometime during retirement.

Then there's health insurance and health-care costs. As you age, you may need some type of assistance with daily living. If you keep your money growing, you'll be able to meet higher or unforeseen expenses later in life.

4. You can't take it with you.

You may want to leave money to your children, grandchildren, other heirs, your community or to a charitable organization. Keeping your money growing will help create that legacy.

5. Live long and prosper.

People who are 65 years old today will live, on average, another 16 years (or longer if you take good care of yourself). With continuing medical advances, it's likely you may live even longer. Have you planned to have enough money to make it to age 90 or 100?

SOME ACTIONS TO TAKE NOW

Make a projection of your financial status up to a reasonable age for you, and then look at what it would be like if you lived 10 years longer. If you do not understand how to make these calculations, get professional advice, as these are complex and important computations.

You don't know how long you will live, but how well you will live may depend on the state of your finances. You want your money to last longer than you do, and this may require accepting more investment risk than you originally thought necessary so that your money can continue to grow.

Beware of becoming too conservative an investor in your retirement years. You can make the mistake of being too cautious.

For example, suppose you have $500,000 invested for retirement and you want to live off the returns from these investments without ever having to withdraw from your principal. You figure that, in addition to your Social Security benefits, your investments will need to provide $2,500 per month or $30,000 per year.

If your combined state and federal taxes take a 20 percent bite, you need pretax income of $37,500 from your investments in the coming year to get your $30,000 of living expenses. If you get a 7.5 percent return on your money, that will allow you to reach your goal. However, if you factor in inflation, your investment base will be used up in about 20 years.

Today, you may be able to find a one-year certificate of deposit paying around 5 percent and 10-year Treasury notes paying about 4.6 percent. That's a long way from 7.5 percent.

Where can you get the returns you'll need to reach your goals? Consider the historic returns of different classes of investments. Although future returns may not match past returns, you can use history as a guide for choosing the mix of investments in your portfolio.

For the past 77 years:

[] U.S. Treasury bills have averaged under 4 percent annual total return

[] U.S. Treasury bonds averaged just over 5 percent

[] Stocks have averaged more than 11 percent

Having an asset-allocation plan that invests in a diversified portfolio of low-cost stock and bond mutual funds, index funds, exchange-traded funds, real estate and smaller businesses may be your answer. If you want to hold onto your assets and live your desired lifestyle, in most cases you'll need to keep your assets growing and use that growth to fund your retirement needs.

Consider your investment choices carefully, and tailor your plans to suit your goals and risk-comfort level. Do not hesitate to seek out competent professional advice, and If you are not comfortable with the advice you receive, get a second opinion.

Planning is the key to a successful financial life in retirement. Plan for higher inflation. Plan for more taxes. Plan for larger expenses. Plan for a longer life. And plan to keep your money growing.

Common mistakes to avoid in investing

[] 1. Failing to organize finances.

[] 2. Investing without clearly defined objectives.

[] 3. Investing without a plan.

[] 4. Not understanding your current or potential investments.

[] 5. Not understating your risk tolerance.

[] 6. Improper asset allocation.

[] 7. Insufficient diversification.

[] 8. Being sold investments instead of finding them.

[] 9. Selling in a panic.

[] 10. Procrastination.

RESOURCE CENTER

* http://moneycentral.msn.com/investor/calcs/n_expect/main.asp

* http://inflationdata.com/Inflation/images/charts/Annual_Inflation/ annual_inflation_chart.htm

* www.bankrate.com

* www.indexfunds.com

* www.indexinvestor.com

* www.nasdaq.com/indexshares/about_funds.stm

* www.dfa.com

Valentino Sabuco has been a Certified Finandal Planner[R] for over 27 years and is the founder of a financial publishing and information technology company.