This is the last in a four part series on planning for retirement, Articles one, September 25th, two October 2nd, and three October 9th, can be obtained by accessing the website www.theroyalgazette.com archive or requesting copies from the Royal Gazette locally.

There are four major areas of financial self-sufficiency where soon-to-be retirees underestimate or fail to plan adequately for:

*Drawing down on assets too soon, and too much, in the early years of retirement.

*Underestimating the loss of purchasing power every year due to the effects of inflation, particularly health care costs.

*Failing to invest and attain the appropriate rate of return while immunising their portfolio from significant capital erosion.

*Miscalculating your family longevity.

General Net Income Formula. In last week's article, we presented an easy calculator chart to help you figure out where to start in this retirement decision maze. The first step was to have a very good idea of your general living expenses; you know the ones that recur on a monthly basis, year in and year out.

We then subtracted, general living expenses from projected annual income from various sources, being sure not to calculate in your total savings. Interest and dividends from a portfolio are also calculated each year on the spreadsheet itself, so those should not be counted with annual income, otherwise you've got a double count. Based upon our first spread sheet example (of last week), you had a deficit of $19,000 dollars ? expense money that has to be made up from somewhere. In the first case, it was then offset (withdrawn) from savings starting in year 2005, and each year thereafter, on an inflationary basis.

Then you were directed to isolate big ticket item costs, particularly, lifelong goals, assign an inflation factor to them and place the inflated amounts in the year you wished to achieve those goals. Both of these costs, the annual deficit and the special goals are then subtracted from your savings.

As you may have noted, the annual expense deficit is more than the portfolio is earning each year. Inevitably, the point of depletion arrives, sooner rather than later. Not a good picture, initially, and probably quite depressing for many, but wait??.

Let's add part-time work to the equation. See chart pictured. You see the significance of making these assumptions and running some numbers early on. Thus, you decide to secure some type of a part-time job before you retire from full-time employment.

The chart has been changed to include additional income from a part-time job. While this amount may seem a bit low, it generates a big difference in the remaining capital base. In fact, even with the low rate of return, your savings continue to grow.

Using additional scenarios, you can mix and match these results with predetermined time frames to continue to work until you find a solution that works for you. Work even for a few more years into retirement means not having to touch your principal. The longer you can delay, the longer your savings will last.

So, what does this all mean? Some would say it is quite obvious, don't spend more than you can earn on your savings. It's more than that though. If you are able to attain a decent rate of growth in your savings with our second scenario, you will then realise that you don't need to expose your portfolio to any significant risk. The object of the game becomes staying comfortably solvent, not trying to make as much of a return as possible. For every incremental percentage point above the highest fixed deposit, your exposure to risk of loss of principal increases.

Asset Allocation Concepts. Rather than using the typical allocations that are just as relevant today as they were when Roger Gibson wrote one of the first books on allocating in the late 1980's, I prefer to work with clients by having them think of their savings in three parts: immunisation, core comfort coverage, and satellite strategies.

Immunisation. Ideally, you want to allocate enough of your savings to last for a year's general living expenses. Next, you want a laddered bond/fixed deposit portfolio with various maturities that will roll down the interest each year into the immunisation account. Your last group ? the satellite ? may be the smallest, but will have the greatest chance to appreciate: a combination of a very. very broadly diversified equity mutual funds and an alternative fund of hedge funds position. These are mutual funds that need, at least five years to grow and hopefully far longer. As they appreciate, you can trim off the profit and roll it down into the core portfolio. Maintaining this type of investment profile, generally means that you are never forced to sell investments into a loss market.

Naturally, if you don't need to stress your portfolio until you are fully retired, you can reinvest all income produced in the interim, growing your money garden exponentially.

There you have it. This is a simple sustainable withdrawal calculator, while nowhere as sophisticated as my practice analytical tools, will still help you get your thoughts and your money in order now.

@EDITRULE:

Martha Harris Myron CPA/PFS CFP? is a Bermudian, and VP, Investment Centre, Bank of Bermuda member HSBC Group, providing investment advisory services and planning. She is a NASD Series 7 license holder, formerly owning a US financial services practice of individual and corporate clients. She can be reached at 299-5578, or confidential email can be directed to marthamyronnorthrock.bm

The article expresses the opinion of the author alone, and not necessarily that of Bank of Bermuda member HSBC Group. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy or sell investment products, nor as a promotion for financial plans. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.