Building a Solid Retirement Portfolio

Make sure you understand how these factors affect the dependability of your income throughout retirement.


Investing for the golden years isn't terribly difficult, though there are many details that need to be addressed before one can rely on their portfolio to fund a comfortable retirement. As you approach the big day, make sure you understand and deal with how each of the following affect the dependability of your income throughout retirement.

How much will taxes eat away at your portfolio when you sell? Too many people forget that a portion of their investment gains is going to end up in Uncle Sam's hands when they sell. This will be an even bigger issue in the next few years, as the long-term capital gains tax rate is set to go back up to 20 percent for most people. Those individuals earning $200,000-plus (and couples earning $250,000-plus) will have another 3.8 percent tax added on top, which is quite a sizable difference for investments that have appreciated substantially.

Even more important is which assets are in tax-deferred accounts. Not everybody discounts their pre-taxed accounts when they calculate their investable assets but remember that the tax treatment of different retirement accounts are not the same, as virtually every dollar coming out of your 401(k) and traditional IRA is going to be taxed as ordinary income.

The situation is even trickier if you have been making non-deducible contributions to your traditional IRA, but the bottom line is that you need to take into account the fact that Uncle Sam is hungry for his share of your nest egg.

How concentrated are the risks in your portfolio? The financial crisis reminded many that catastrophic events, however unlikely, can happen and cause havoc to anyone's portfolio. For every investor who gains their riches buying Walmart or Apple and hung on for decades, there are just as many that lost everything hanging onto Citigroup or Enron. It is simply not prudent to ignore the sometimes incalculable risks inherit in every investment. The good news is that by diversifying, we can drastically dampen the damage any event can cause to our nest egg.

How easy is your investment portfolio to manage? Even if you are a stock-picking genius and your portfolio trounces the market year in and year out, you need to prepare for the day when you either can't, or don't want to manage your complicated investment portfolio anymore. Can anyone else you trust continue to easily follow your withdrawal strategy without hiccups? For those who use a money manager, what is your plan when he/she retires? And even if you favor the passive index fund approach and only own index funds, does anyone else know how to log into your online accounts and continue to manage what needs to be taken cared of in case you become incapacitated?

David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.