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By Jason Stipp and Christine Benz | 05-09-2013 02:00 PM

Get a Handle on Your Portfolio

Ahead of Portfolio Makeover Week, Morningstar's Christine Benz offers tips to alleviate common concerns over retirement readiness, inflation, allocation, and more.

Jason Stipp: I’m Jason Stipp for Morningstar. Our Portfolio Makeover Week kicks off May 20, and Christine Benz, our director of personal finance, has been gleaning some insights from readers’ submissions, submitting their portfolios for review. She is here to talk about some frequent concerns and how investors might address them on their own.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: Among the concerns that you’ve seen over and over from readers who have submitted their portfolios to you is retirement readiness, and of course, the big question with retirement readiness is "Do I have enough money for my goals to actually retire?"

Benz: Right. This is such a common concern, and it’s only natural that you would want a second or a third opinion on this. So, even if you have crunched the numbers or worked with a financial advisor, it’s only natural that you would want to reach out and see whether you are on track to actually have enough during retirement.

Stipp: And you say that one of the things that a lot of folks will do is take a look at the raw number, and it will seem just too low. But that’s really just part of the story how much you have. It also depends on a lot of other factors.

Benz: It really does, and it depends mainly on your anticipated spending during retirement. So, for example, there was someone who wrote into me, and this person had roughly $320,000 in assets, getting ready to retire. That might seem to set off alarm bells, but this particular person had a pension, had Social Security, and had modest spending, so really their income needs were covered with the pension and social security. This $320,000 was just sort of some money on the side that was gravy essentially, and that was money that they would hope to invest well for their kids and grandkids.

So, the raw number alone is not enough. You really need to dig in, look at your anticipated spending needs, and crunch some numbers on that. You can use the simple 4% rule. You can use a calculator to see whether you are on track once you’re factoring in all of your income sources during retirement. One tool I often refer people too is the T. Rowe Price Retirement Income Calculator. Or I think this is a great [opportunity] to see a fee-only advisor to do that check for you, even if you feel really comfortable with your starting point that your nest egg is enough to last you throughout a long retirement. A financial advisor can really help you get comfortable with that number and whether you will have enough.

Stipp: So, let’s say I get some bad news when I crunch the numbers with a calculator, or I see an advisor, and it looks like there could be a shortfall. What are my levers? What can I do at this point?

Benz: It really depends on where you are in your life stage. So, if you are someone who is younger, your two big levers at that point are to continue working and to continue saving. If you are someone who is getting close to what you hope will be your retirement date, your levers are relatively less. You can either push your anticipated retirement date out a little bit, or I know this is not palatable, but you can plan to reduce your spending somewhat or make some lifestyle changes that will push down on your spending. Those are your choices at that standpoint.

Obviously, it’s better to run through these exercises as early in your life as you possible can and keep running them to make sure that you are still on track. And the earlier that you do it, the more changes you can make. You can also adjust your asset allocation, though it will tend to matter less than will some of these other factors such as reducing spending or continuing to work.

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