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A few tips for framing your retirement

Posted: November 10, 2008 4:05 p.m.
Updated: November 11, 2008 4:59 a.m.
A lot has changed since you were a kid. Retirement has changed as well. The way you picture yourself in retirement is probably different from your parents' retirement. It's no longer about a few years of rest and relaxation. It's about pursuing your lifelong dreams or discovering new ones.

With people living longer, it can be exciting and scary. If you are already in retirement, and receiving income from your investments in the market, it's not only scary watching depletion of your principal by the market declines. With traditional sources of income such as pensions and Social Security on the decline, the burden of creating a source of income you can't outlive has become your responsibility. So, how do you implement a lifetime income stream that can help protect your standard of living, provide growth potential and ultimately give you the financial freedom to live life the way you have always wanted?

While accumulation of retirement assets is important, how you prepare for the next phase, asset distribution, can have a big impact on your financial freedom tomorrow. It is important to have a flexible income strategy in place that can address these four main risks:

n Inflation risk - Over time the increasing cost of goods and services can significantly erode the value of your savings and diminish your purchasing power.
With normal inflation, longer life expectancies and skyrocketing costs of health care and prescription drugs, your retirement paycheck may not be enough to keep pace with your financial needs.

n Market risk - With our increased longevity, it is necessary to take advantage of the growth potential of the equity markets. However, volatile market like current problems of energy and financial can be even more devastating in the income phase of retirement.

n Longevity risk - we all know that Americans are living longer than ever before. The burden of creating a retirement paycheck has become your personal responsibility. To reach your financial goals, you need a solid retirement plan that includes the growth potential to keep pace with your lifelong pursuits and a reliable income source you simply can't outlive.

n Loss of control - not being able to control inflation, the market, or how long you will live can ultimately lead to a feeling that you have lost control. Unforeseen problems such as an illness or family emergency can also cause a big change in your plans, unless you have an income strategy that addresses these risks and allows you to have access to your money, adjust your income stream for changing needs and give the flexibility you need in retirement.

To address four risks to your retirement plan, it will help if you can minimize these risks and take the guesswork out of planning.

Having a variable annuity to supplement your retirement income can help make long term planning easier.
An annuity is the only investment vehicle, aside from a pension or Social Security that offers lifetime income that you cannot outlive. It is paid to your named beneficiary avoiding probate. Because of different features and riders between the companies that offer variable annuities, discuss if variable annuities have a place in your retirement planning with your financial advisor.

Jim Letini is president of Lentini Insurance & Investment, Inc., located in Santa Clarita. His column reflects his own view and not necessarily that of The Signal.


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