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Private Portfolio Management

   


If you are beginning to think about retirement we may be able to help you position assets for that event.

The amount of income that you will need is a function of your life style and expectations. For most people, retirement income comes from a variety of sources. These include pension income, Social Security, investment income.

Investment income can be from a number of sources such as IRAs, a personally held investment portfolio, income producing real estate and possibly business income from part ownership in a small business.

People often ask; "How much income do I need?"  This depends on your current lifestyle and expectations. There are a myriad of things to think about and a lot of it is unique to your own situation. That being said, if you are living comfortably now on your current income, you simply need to figure out if you could replace that income. At the same time, you need to assume that inflation will not go away so the iincome that you start your retirement with must have the ability to grow as you continue through retirement. Here are a few things to consider.

Take a look at your total or gross income. What benefits are you getting from your employer other than cash? Health insurance, life insurance, etc.? Usually if you are buying these through an employer, you are getting discounts, so you will need to cover these expenses if you retire.  The biggest expense retirees face is health insurance. Also keep in mind that if you are contributing to a 401k or other payroll deducted plan, you are already reducing your income.

The other way to look at it is to add up your current expenses. Delete those that may dissapear when you retire such as debts etc. Then assume that those fixed expenses will probably double in about 15 years or so. That's about a 4-5% inflation rate. Social security should increase with that. Your pension (if you have one) may increase with that. So you have to figure out if your investments - or the income from your investment portfolio can keep up with that pace.

Investment Income

To calculate a reasonable income, it is suggested that a retiree project withdrawals at about 4-6% of invested assets. So, a well balanced portfolio of about $500,000 could generate $25,000 per year and should (no guarantee) also be able to grow. As it grows, you could continue to increase your income. Check the links below for some income calculators.  It is critical that these portfolios are monitored closely. People are living much longer and retirement is lasting much longer so it is important to grow income over time.

  • Income must be able to grow throughout retirement to keep up with inflation. If you retired in 1976 or 30 years ago, living on $15,000 to $20,000 per year income was very good . Today it is very low. Inflation erodes income.
  • People are living almost as long in retirement as they worked.
  • Medical expenses are the largest expense retirees face.
  • Property taxes will continue to increase.
  • Food and utility expenses also increase.
  • Many people work though the early years of their retirement for a supplemental income. They tend to engage in programs they are interested in.
  • IRS requires mandatory distributions at age 70 1/2 from all retirement plans.
  • Consolidating assets into as few accounts as possible is advisable. Consolidate 401ks, IRAs etc. This improves money management returns and eases estate transfer.
  • Pre-retirement is the best time to consider estate planning, elder care planning and tax planning.
Taking a Fixed Annuity Option 

Some people may elect to take a fixed annuity income option from there pension or retirement plan. This is usually funded by an annuity underwritten by an insurance company. For some people it is a good option but there are some problems.

If you take the annuity income, there is no going back. You are almost always locked into that option for the rest of your life. So, the problem is the loss of flexibility. What looks good today, may not be good ten years from now. Some professionals suggest buying two "guaranteed" annuities. One that is growing, and one that is being depleted. Although this is an interesting option, the same strategy could be implemented by using a zero coupon U.S. government bond on one side and another fixed investment on the other that is being depleted. Before making a final decision to annuitize a contract or pension option, be sure to review and understand thoroughly what you are getting into. These are complex products and easily misunderstood.

Conclusion

This is not a simple process. Most people need to accumulate as much as they can to retire comfortably. At the same time, some people sit on tons of assets and do not manage them at all. This is also a waste. It is better to manage the money properly, gift it to family and worthy causes and generate positive benefits.  

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