In retirement you have to decide how to best use the money available to you. You want to spend enough of that money to make a meaningful contribution to your lifestyle in retirement. You also want to keep from spending too much, which could cause your IRA or investment portfolio to run out of money. Planning for a retirement "spend-down" involves two components:

1. You must allocate your investment assets. Many retirees load up on bonds, bond funds, bank accounts, and other forms of income-paying assets. However, bonds can be expected to return only 5 percent-6 percent per year, based on data going back to 1925.

During that same period, stocks have returned 10 percent-12 percent per year. Over the long term–say, a 25-year retirement–stocks are very likely to outperform bonds, and that out performance may be by a wide margin.

Therefore, you shouldn’t load up on bonds. In effect, you already have the equivalent of a large bond portfolio from your federal annuity and Social Security benefits. If you’re receiving $30,000 per year from those two sources, for example, that’s the same as holding $600,000 worth of bonds paying 5 percent per year. If you’re receiving $50,000 a year, that’s the income you’d receive from a $1 million bond portfolio.

2. You must have a plan for tapping your portfolio. That is, how much of your portfolio should you convert to cash each year? Developing a schedule of withdrawals will pay off over the long term.

Telling yourself that you can only cash in so many dollars per year will help you to say no to con artists, questionable causes, relatives and "friends" who ask for money.

Studying historic data, investment pros have come up with a method of tapping a retirement portfolio:

• In the first year, spend 4% of your portfolio.

• Each succeeding year, increase withdrawals to keep pace with inflation.

With a $500,000 portfolio, for example, you’d begin with a $20,000 withdrawal. If inflation is 3 percent, the next year you’d withdraw $20,600. And so on. Each year your withdrawal increases to maintain your spending power.

Such an approach is virtually guaranteed to keep you from running out of money, no matter how long your retirement, based on how financial markets have performed over the last half-century.