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Income Planning for Retirement: Can Your Portfolio Take a "Hit"?

While saving for retirement in today’s economy is a significant challenge, the real test of endurance can come when it is time to spend your nest egg.  Just when you reached the peak of your savings journey and begin to climb down the mountain a new level of caution and planning needs to take place to avoid one of the greatest financial fears of all: outliving your money. The need for cohesive income planning in retirement has never been greater, and it is critical to identify these challenges in order to truly plan for them. There are three often overlooked items to consider that may cause your portfolio to take a serious “HIT” in retirement: Healthcare, Inflation and Taxes.

Healthcare: As Americans continue to live longer, with retirement now lasting potentially 20 to 30 years, healthcare costs are a significant financial consideration. According to the latest estimates from Fidelity Benefits Consulting, a 65-year-old couple retired in 2013 will need $220,000 to cover medical expenses throughout retirement—above and beyond Medicare, not including nursing home costs. While few Americans have $220,000 earmarked for healthcare, Medicare supplements and hybrid insurance advancements are continuing to develop to help fund these gaps, providing multiple areas of coverage and functionality within a total income plan.

Inflation: Playing it too safe with your investments may also create great risk. With historical average inflation rates between 3-4%, you can expect your expenses to double over the course of a 20-year retirement. CDs and fixed rate investments are not providing what most would consider sustainable income today, let alone hedging against inflation; at the point interest rates do begin to rise, bonds and other traditional retirement investments may suffer significant damage if not properly hedged for inflation.

Taxes: Another considerable eroding factor for a retirement portfolio is taxes. As one of the first generations to have built up significant tax-deferred accounts, such as IRAs, each of these dollars is subject to income tax rates of the future.  Even if you do not need the income, required minimum distributions may bump you into a higher tax bracket once your reach age 70.5 and beyond.  Failing to forecast how these withdrawals will impact your plan over time can be a critical oversight, potential even resulting in a 50 percent penalty to the government when not taken correctly. Whether in your lifetime or inherited by your heirs, these qualified accounts should be handled by experienced professionals to avoid costly and irreversible mistakes. 

There is an old adage that if you allocate 60 percent to bonds and 40 percent to equities, you should be able to take 4 percent of your portfolio value in annual income without running out of money.  However, due to low interest rates and extreme market volatility of the past decade, that calculation is now expected to have a 50 percent chance of failure according to research Morningstar Investment Management in 2013.

To truly prepare your portfolio for the challenges ahead and adapt for today’s modern economy, it’s important to start planning early to help ensure you’ve saved enough to afford all the hidden expenses of retirement, your investments are structured to keep pace with cost of living and that you’re protecting your savings from unnecessary fees and taxes.


Christopher Scalese, financial advisor and president of Fortune Financial Group, is best known as Northeastern Pennsylvania’s Retirement Specialist. Scalese has spent the last two decades of his career assisting area residents with the financial transition from the working years to the retirement years. His primary goal is to help individuals structure their finances so that they have a steady income throughout their lifetime, while working to ensure their finances aren’t overly exposed to risk or unnecessary taxation. Scalese is an investment advisor representative, life and health insurance licensed and currently working on earning his Chartered Financial Consultant designation. Scalese received his Bachelor of Science degree in finance and Master of Business Administration degree from Wilkes University. For more information about Christopher Scalese and Fortune Financial Group, please visit

Fortune Financial Group, Inc., is an independent firm with securities offered through Summit Brokerage Services. Inc., Member FINRA, SIPC.

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