Making Cents: Retirees still have time to make changes to financial portfolio

John P. Napolitano

The lousy economy and shaky investment markets have everyone concerned - but few people are more concerned than the retired or those about to retire.

There are a few ways that I'd like to share to build an income base that may be a bit more tolerable of market fluctuation. First, consider a “set-aside fund” equal to five years of spending. So if you need an extra $50,000 per year after Social Security or any other sources of guaranteed income, take $250,000 and put the money in as safe a place as you can find.

This money should be invested in vehicles with very little volatility and a guaranteed return. Bank products and the federal government may be the best avenue. If you have five years of spending tucked away, you should worry less about other investments that may now be under-performing.

Now we can plan for the next five years. They are just as important as the first five, but you may be able to take a little more risk because the funds have a bit more time to grow. If you follow this philosophy and always have 10 years of income covered by investing money very conservatively, you should be able to withstand rough spots in the economy.

Real estate may be proper in a retirement portfolio, but I'd be uncomfortable if more than 25 percent of your income had to come from net rental income. Of course, we all know that real estate values go up and down - but so does the income. Tenants move, businesses go bankrupt and repairs can pop up when you least expect it, making any particular month or year a cash-flow disaster.

Another issue with real estate is that, unlike a CD, it is not passive investment that just generates income. Real estate is an active investment that can require a significant investment of your time.

Fixed annuities are another time-tested tool for retirement income. Make sure you buy them from an independent agent who offers products from several insurers.

Choose products from issuers with strong financial ratings and diverse choices in terms of time periods and income options. Compare the expenses, surrender periods and other options with each offer to be sure that you can evaluate one versus the other.

It's not too late to change your outlook on getting the guaranteed retirement income that you may need. Take a fresh look at your situation and decide if it is time to change your plan.

John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached at jnap@uswealthcompanies.com. For online discussion, go to www.makingcentsblog.com.