Many factors to take into account for retirement

ANN COOKE - THE ABLE INVESTOR | • Published October 29, 2008

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Planning for retirement isn't just about how much money you can accumulate — it also looks at how you use those funds during your retirement. Risk can be defined by both volatility and income shortages, and it’s important to create a retirement plan that addresses both issues. You need a cash-flow plan that will support your retirement lifestyle and help manage unanticipated expenses.

Aside from basic living expenses and occasional luxuries, your cash-flow plan should take into account other factors such as longevity and health care. According to the Society of Actuaries’ Annuity 2000 Mortality Table, couples age 65 today will most likely have at least one spouse live to age 92. Also, if Medicare benefits continue at their current levels, the 2007 Retirement Confidence Survey of the Benefit Research Institute suggests that couples will need $300,000 to $550,000 to cover health care expenses while living in retirement. This means savings have to last longer, and more long-term planning is necessary.

Perhaps the worst possible time to experience a market downturn is right before or after retirement, when you have the largest amount of money at stake. The bulk of retirement funds for most investors are usually held in tax- deferred accounts such as IRAs and 401(k)s, however the returns on these investments are not guaranteed and can fluctuate with the market. Allocating a segment of your portfolio to guaranteed income sources could help reduce your overall risk.

Periodically analyzing your asset allocation strategy is important though, because if the fixed income element of your portfolio is too heavy, you might run the risk of outliving your assets. An effective retirement plan should produce an investment return that is high enough to outpace inflation and meet your after-tax expenses, while also providing a little cushion in the case of unforeseen expenditures.

Working with financial adviser is a great way to adequately plan for retirement. They can work with you to create a plan and build a portfolio that fits your needs and goals, and is designed to sustain you for the long haul.

Ann Cooke is a Financial Adviser located in Olympia and may be reached at 360 943-2300 or www.fa.smithbarney.com/cooke. Smith Barney does not provide tax or legal advice, and it is important to consult with a tax or legal advisor before investing.