Yulian Isakov

Is your retirement income and portfolio built to last?

You may be already retired but you always need to monitor your portfolio and investments to make sure you are positioned to produce income and outpace the wear and tear from inflation.

You may be already retired but you still have work to do making sure your assets are working as hard as they can for you producing the income that you need to cover your retirement living. Making sure your assets are performing means balancing your need to create an income stream for your day-to-day living as well as you building for you long-term growth.

1. Could my portfolio weather then next market downturn?
Almost everyone's portfolio that went throught the recent market downturn needed some re-adjustment to get back on track. One of the best ways to rebuild your portfolio, especially if it contains high-quality assets such as large-cap stocks and high-quality bonds, is to give them time to recover knowing that as the economy improves so should the assets. Careful examination of your current portfolio is still necessary to make sure that even within the high-quality asset space you are not exposed to any unnecessary risks. Putting a good retirement strategy in place helps reduce the chances of having to tap into your investments for income needs at the wrong time.

From time to time, retirees should re-evaluate their income needs and resources. Meet with your Financial Advisor to discuss if there have been any changes in your expenses say increases for health care or maybe decreases in other lifestyle costs and to what degree you are willing to take on risk. Then make sure your new lifestyle changes and in needs are built into your portfolio even if it needs to be re-adjusted to that you can cover the next several years of expenses with a mix of income producing assets such as good dividend paying equities, high-quality fixed income instruments, certificates of deposits (CDs), real estate investment trusts (REITs), and inflation protected securities (TIPS).

If you are becoming more risk-averse and are afraid of volatility, you might want to consider an annuity for guaranteed income. "Considering a single-premium annuity can combine the safety needs we typically see with retirees with the highest amount of income for the retirement dollars going in there," says Albert Isakov Chief Investment and Market Strategist at Isakov Planning Group. Speak with your Financial Advisor to get a more complete picture of the various annuity options and their benefits that may be available. More importantly, discuss with your Financial Advisor how these annuities can serve as a viable strategy for building and preserving your retirement income.

2. Will my assets keep pace with inflation?
People are living longer and retiring early these days. The average length of retirement years has substantially increased since the 1960s from 13 years to about 20+ years today. Unfortunately, the longer those retirement years get, the worse inflation affects a portfolio, with the ability to significantly deteriorate the value of your retirement assets.

Several types of assets can help hedge against inflation risks. "One of the best and proven ways to hedge against long-term inflation is through equities," says Albert Isakov Chief Investment and Market Strategist at Isakov Planning Group, who notes that stock returns tend to stay ahead of inflation over the years. However, they are not the only hope. Adding Inflation-Protected Securities (TIPS) to your fixed income portion of your portfolio can help you protect the deteriorating ability of inflation over time. TIPS adjust the bond's principal with changes in in the consumer price index - an economic indicator of inflation - and if overall prices rise, the consumer price index will rise, and that has the effect of increasing your interest payments. Adding gold to your portfolio can have the effect of hedging against inflation as well because gold tends to increase in value during periods of inflation. Other inflation hedges include variable annuities, which provide guaranteed income and the potential for growth by giving you equity exposure via its underlying investment options.

3. Are you checking up on your retirement portfolio regularly?
Having the framework in place that will build your retirement portfolio and ultimately generate your retirement income is undoubtedly a critical step, but equally crucial is reviewing your retirement plan and strategies at least annually to determine whether there have been any changes to your objectives and income needs, spending habits, as well as your risk tolerance.

Getting together regularly with your Financial Advisor will help you understand the right times to move assets arounds to say more conservative income-producing positions or to shift them to growth-oriented investment opportunities. Discussing various strategies is important not only to take advantage of market opportunities but also to anticipate market downturns. "You want to have enough liquidity so that in case of a market recession, like the one we have recently experienced, you might be able to avoid putting yourself in a situation where you are forced to sell off investments to meet your cash needs," says Albert. "You are better off putting yourself in a position where you and your Financial Advisor are make decisions proactively rather than decisions for damage control."

4. Are you prepared for the cost of health care?
Expenses associate with health care such as a nursing home, an assisted-living facility, or private home-care has risen to levels double the rate of inflation over the past several years. About eight hours of home-care can cost anywhere from $43,000 to $70,000 annually, and private nursing home care now averages about $75,000 per year, depending on several factors. With costs like these, it is very likely that all your goals can be thrown off track and your retirement assets tapped out quickly. Despite the rise in health care costs which Medicare won't cover, astonishingly almost 90% of Americans surveyed by the Life and Health Insurance Foundation for Education didn't have a plan to meet those costs. You need to discuss the health care issue as early as possible with your Financial Advisor and address how you will pay for your health care needs when the time comes so you can retire confidently knowing that you have a way of paying for healt-related expenses.

One popular option is to purchase a long-term care insurance, which is a way to cover your expenses for extended care. Additionally, you could self-insure through personal savings, although that may be difficult if you haven't done so because it will require substantial additional savings. Or you could take advantage of new changes in the tax code that permit individuals to purchase a long-term care policy using funds from a non-qualified annuity which starting January 1, 2010 is no longer subject to federal income taxes. This makes it very tax and cost efficient to purchase the long-term insurance that you need.

5. Is your retirement everything you'd hoped it would be?
It's never too late to go back to the drawing board and reassess what you want to get out of your retirement or adjust any goals you may have started out with one way and shift them to somthing else. Don't be afraid to make some tweaks, because it is usually not too late to adjust a portfolio in some fashion to align you with other aspirations you may have. With an investment strategy and guidance from an Financial Advisor, you can make it work.

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