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Will your nest egg last?

Adrian Mastracci, Senior Portfolio Manager at Lycos Asset Management

Over the years you’ve taken plenty of advice, saved and invested diligently. Now you and your family are knocking on retirement’s door or, perhaps, in its midst. The good news is that family members will likely live longer than before. The flip side is that more money may be required to fully fund retirement lifestyle.

Let’s assume that retirement spans from age 65 to 90, often more. Do you ever worry that the money won’t last? I summarize six items that help your retirement money last:

1. Family life expectancy
Analyze life expectancy of the immediate family members for both spouses or partners. Get familiar with the ages attained by family members that have passed away. Pay attention to patterns of critical illness and longevity. Expect at least one spouse to live past age 90.

2. Becoming ultra conservative
Conventional wisdom believes that retirement portfolios should invest in more bonds and fewer stocks. That is often a critical mistake. A retirement projection estimates how much capital is required to safely meet family goals. One major snag is that the vast majority of retirement portfolios do not receive saving capacity once the contributors stop working.

3. Soaring health costs
Every family is wise to contemplate the impact of rising health costs. It is not unusual for a family requiring a retirement home facility to incur costs in the thousands of dollars per month for each spouse. Medications can also add considerable cost burdens, especially if the family pays the entire cost.

4. Ravages of inflation
A sure way of taking a cut in purchasing power is to incur the ravages of inflation. As an example, assume that inflation remains a constant 2% per year for the entire retirement horizon. An initial retirement income goal of $100,000 per year requires near $122,000 in 10 years, $149,000 in 20 years and $181,000 in 30 years. That just maintains the same purchasing power.

5. Portfolio draws
Spending too quickly can place the retirement plan in jeopardy. Starting the portfolio draws near 3% provides more opportunity to tweak the plan. Families have to be realistic when planning retirement. Most retirement portfolio strategies require making investments around a balance of stocks and bonds. Try your utmost not to take drastic actions.

6. Your work life
A method of making adjustments to the size of the retirement fund is to tweak your work life. One or both spouses may decide to work longer before retirement is finalized. Another way is to work part time during some of the retirement years.

Every family contemplating or in retirement is faced with a variety of all-important decisions. Particularly, a prudent asset mix that reflects both the potential for reasonable growth and sensible investing risks.

Adrian Mastracci
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