To the Portfolio Doc: I'm a 58-year-old sculptor, self-employed, and though highly regarded, not very well paid (annual income: $10,000). My 64-year-old husband works in high tech and earns about $65,000 annually. He intends to work for another two or three years before retiring. We have a scattershot portfolio, in part the result of legacy IRAs and 401(k)s through several job changes. I'm pretty sure there's a lot of unnecessary duplication in what we own. And I suspect that we should be cutting back on risk since there's not an awful lot of time for us to recover from a serious bloodletting in the stock market. We own our own home. Our mortgage is small and will be paid off soon. Since this property has appreciated considerably, and since we don't intend to remain here after retirement, we'll be able to buy another residence and probably be able to add around $75,000 to our nest egg. The kids are on their own with no children. So it's essentially a question of funding our own quite modest needs. Can you recommend the changes that would get us to our goal of $480,000 to $500,000 in the next couple of years? (My husband will continue to contribute the maximum to his 401(k), with a 1% match from his employer.) Once my husband retires, we'll want more income, less risk, with still some prospects for growth. My husband has a strong feeling against corporate bonds and bond funds and is resistant to the idea of increasing our quite modest investment in these areas -- he'd rather go with CDs, and I'm not sure he isn't correct. Equity-income funds are a type of investment I know very little about. Are these a reasonable place for part of our money? Which one/ones? My husband is funding his retirement plan at about $10,000 a year. I am adding $2,000 annually to my IRA. I do not expect to tap that for another six years, when I reach age 65. My husband will be 65 in May, but plans to continue to work for at least another 18 months from now. We haven't done anything drastic during the market swoon -- just continued dollar-averaging the investment in his current 401(k). Essentially, we have several different money pots: The biggest is TIAA-CREF, which was established many years ago; Fidelity (his) -- about $100,000 in rolled-over 401(k) funds from several previous employers and which holds most of the individual stocks and Fidelity funds -- and his present 401(k) account, which is invested in Invesco Dynamics. Life was a lot simpler when people got gold watches and had defined benefit pensions. JV

JV,

Getting your combined portfolio to be worth half a million dollars in the next couple of years shouldn't be a problem. Your current portfolio is worth about $350,000, you expect to add $75,000 to the portfolio when you change houses and you plan to contribute another $15,000 to $30,000 to your retirement accounts. What's more important is that your retirement portfolio can generate enough returns over time to meet your needs for income. Even though you're still contributing to your retirement accounts, it's not too soon to start thinking about how you're going to spend the money over time. The

Social Security Administration

sends you

an annual statement showing your earnings history. You can use that earnings history to get an estimate of the Social Security benefits your can expect in retirement. You can input the benefits estimate into a

retirement calculator along with other inputs that will help you estimate your income needs in retirement.

Investments held in tax-deferred retirement accounts will be taxed as ordinary income when withdrawn from the accounts as qualified distributions. The distributions that you take from these accounts will be taxed the same way whether you earned the returns from dividends, interest or capital gains. What you're concerned about is volatility in the portfolio's value and the portfolio's ability to earn a return that will provide you with the income you need in retirement. You still need growth in your portfolio, but you need to lessen the investment in speculative growth and aggressive growth stocks.

CD rates are coming down along with other interest rates, especially after the

Federal Reserve

began an easing cycle in fed funds last week. Your

Fidelity Ginnie Mae

fund earned more than 10% last year, but it will be hard for the portfolio manager to do as well this year, as mortgage prepayments accelerate and the reinvestment rate falls. If your husband doesn't want to invest in corporate bonds or corporate bond funds, then you're limited to governments, savings bonds and CDs. The best advice in the fixed-income (bond) area is to avoid being long and wrong. That means you don't want to be locked into a long-term debt investment when interest rates are rising. Stay away from callable CDs. Their yields may look attractive, but it's one of the easiest ways to wind up being long and wrong. The pickup in yield is not worth the additional risk.

It would be far better to ladder a CD portfolio, or government security portfolio. This approach is similar to dollar-cost averaging in the stock market. You invest an initial lump sum out through a maximum maturity in equal, periodic investments. As investments mature, you reinvest the maturing security out to the maximum maturity. The securities are your steps in the ladder. When the shortest-term security matures, you reinvest out to the longest term that you originally invested. The periodic nature of reinvesting keeps you from making interest rate bets in the marketplace.

I'm not a big fan of variable annuities, especially as retirement account holdings, but the CREF variable annuity has low insurance expenses and Morningstar has reported the subaccounts as having above-average to superior performance so there's no compelling reason to switch out of these investments.

You may have a scattershot portfolio, but there's not a lot of stock overlap caused by mutual funds playing in the same sandbox. You should question positions that represent less than 1% of your portfolio's value. You have 11 investments that don't meet that hurdle. Sell the ones you don't like and use the proceeds to add to the ones you do. I don't think you need two international funds and you could consolidate some of your mutual funds that invest in large-caps into an

S&P 500

index fund that has lower annual expenses.

As originally published, this story contained an error. Please see

Corrections and Clarifications.

Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at

portfoliorx@thestreet.com.