Retirement Income Portfolio Management: The Plan

The reason people take the risks of investing in the first place is the possibility of achieving a higher “realized” rate of return than can be achieved in a risk-free environment… that is, a bank account FDIC insured with compound interest.

• Over the past ten years, this type of risk-free savings has been unable to compete with riskier means due to artificially low interest rates, forcing traditional “savers” into the mutual fund and ETF market.

• (Funds and ETFs have become the “new” stock market, a place where individual stock prices have become invisible, questions about companies’ fundamentals are met with blank stars, and commentators from the media tells us that people are no longer in the stock market).

Risk comes in many forms, but the main concerns of the average income investor are “financial” and, when investing for income without the proper mindset, “market” risk.

• Financial risk involves the ability of corporations, government entities, and even individuals to meet their financial commitments.

• Market risk refers to the absolute certainty that all marketable securities will experience fluctuations in market value…sometimes more than others, but this “reality” must be planned for and dealt with, never feared.

• Question: Is demand for individual stocks driving funds and ETF prices up, or vice versa?

We can minimize financial risk by selecting only high-quality (investment grade) securities, diversifying appropriately, and understanding that market value change is actually “harmless income.” By having an action plan to deal with “market risk”, we can turn it into an investment opportunity.

• What do banks do to get the amount of interest they guarantee to depositors? They invest in securities that pay a fixed rate of income regardless of changes in market value.

You don’t have to be a professional investment manager to manage your investment portfolio professionally. But you do need to have a long-term plan and know something about asset allocation…an often misused and misunderstood portfolio planning/organization tool.

• For example, annual portfolio “rebalancing” is a symptom of dysfunctional asset allocation. Asset allocation should drive every investment decision throughout the year, every year, regardless of changes in market value.

It’s also important to recognize that you don’t need high-tech software, economic scenario simulators, inflation estimators, or stock market projections to properly align with your retirement income goal.

What you do need is common sense, reasonable expectations, patience, discipline, soft hands, and a large driver. The “KISS principle” should be the basis of your investment plan; Composite gains the epoxy that keeps the structure safe and secure during the development period.

Additionally, an emphasis on “working capital” (as opposed to market value) will help you through the four basic portfolio management processes. (Business majors, remember PLOC?) Finally, a chance to use something you learned in college!

retirement planning

The Retirement Income Portfolio (almost all investment portfolios eventually become retirement portfolios) is the financial hero that appears on the scene just in time to fill the income gap between what you need for retirement and guaranteed payments. that he will receive from the uncle and/or from the past. employers

However, the power of the superhero force does not depend on the size of the market value; From a retirement perspective, it’s the income produced under the guise that protects us from financial villains. Which of these heroes do you want to feed your wallet?

• A million dollar VTINX portfolio that produces about $19,200 in annual spending money.

• A well-diversified, million-dollar income CEF portfolio generating over $70,000 a year…even with the same capital allocation as the Vanguard fund (just under 30%).

• A million dollar portfolio of GOOG, NFLX and FB that makes no money to spend.

I’ve heard that a 4% withdrawal from a retirement income portfolio is normal, but what if that’s not enough to fill your “income gap” and/or more than the amount produced by the portfolio? If both “what ifs” turn out to be true… well, that’s not a pretty picture.

And it gets uglier fast when you look inside your 401k, IRA, TIAA CREF, ROTH, etc. portfolio and realize you’re not producing even close to 4% in actual spendable income. Full return, yes. Spendable income made, ‘I’m afraid not.

• Sure your portfolio has been “growing” in market value for the past ten years, but chances are no effort has been made to increase the annual income it produces. Financial markets live on market value analysis, and as long as the market goes up each year, we are told that all is well.

• So what if your “income gap” is more than 4% of your portfolio; What if your portfolio is producing less than 2% like the Vanguard Retirement Income Fund? Or what if the market stops growing by more than 4% per year… while you continue to deplete capital at a rate of 5%, 6% or even 7%?

The less popular income closed-end fund approach (available only in individual portfolios) has been around for decades and has all the “what ifs” covered. They, in combination with Investment Grade Value Stocks (IGVS), have the unique ability to take advantage of market value fluctuations in either direction, increasing the portfolio’s income production with each monthly rollover procedure.

• Monthly rollover should never become a DRIP (dividend reinvestment plan) approach, please. Monthly income should be pooled for selective reinvestment where the highest return can be achieved. The goal is to lower your cost per action and increase position performance…with the click of a mouse.

A retirement income program that focuses solely on market value growth is doomed from the start, even in IGVS. All portfolio plans require a revenue-focused asset allocation of at least 30%, often more, but never less. All individual security purchase decisions must support the “intent for growth vs. intent for income” asset allocation operating plan.

• The “working capital model” is an autopilot asset allocation system proven over 40 years that virtually guarantees annual revenue growth when used correctly with a minimum 40% revenue purpose allocation.

The following points apply to asset allocation plans running individual tax-deferred and taxable portfolios…not 401k plans because they typically cannot generate adequate income. Such plans must be allocated to the maximum security possible within six years of retirement and transferred to a personally directed IRA as soon as physically possible.

• “Income purpose” asset allocation begins at 30% of working capital, regardless of the size of the portfolio, the age of the investor, or the amount of liquid assets available for investment.

• Startup portfolios (less than $30,000) must not have an equity component and no more than 50% until six figures are reached. Starting at $100k (up to age 45), as little as 30% of income is acceptable, but not particularly productive for income.

• At age 45, or $250k, move to 40% income purpose; 50% at age 50; 60% at age 55, and 70% titles for income from age 65 or retirement, whichever comes first.

• The income purpose side of the portfolio should be kept as invested as possible, and all asset allocation determinations should be based on working capital (ie, the portfolio’s cost basis); cash is considered part of the capital or “purchase for growth” allocation

• Equity investments are limited to CEFs of equity with seven years’ experience and/or “investment grade security stocks” (as defined in the book “Brainwashing”).

Even if you are young, you need to quit a lot and develop a growing stream of income. If you maintain revenue growth, market value growth (which you’re expected to love) will take care of itself. Remember, a higher market value may increase the size of the hat, but it doesn’t pay the bills.

So this is the plan. Determine your retirement income needs; start your investment program with an income focus; add capital as you get older and your portfolio becomes more meaningful; When retirement approaches or portfolio size gets serious, make your income purpose assignment serious too.

Don’t worry about inflation, the markets or the economy… your asset allocation will keep you on the right track as you focus on increasing your income each year.

• This is the crux of the whole “preparing for retirement income” scenario. Every dollar added to the portfolio (or earned by the portfolio) is reallocated according to the “working capital” asset allocation. When your revenue allocation is above 40%, you’ll see your revenue magically increase every quarter…regardless of what happens in the financial markets.

• Please note that all IGVS pay dividends that are also divided according to asset allocation.

If you’re within ten years of retirement age, a growing income stream is precisely what you want to see. Applying the same approach to your IRAs (including 401k rollover) will generate enough income to pay the RMD (mandatory required distribution) and put you in a position to say, without reservation:

Neither a stock market correction nor rising interest rates will negatively impact my retirement income; in fact, I will be able to increase my income even better in any setting.