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THE RISK MANAGER

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THE RISK MANAGER, Fall 2018 - Income Planning Part I

 

INCOME PLANNING SERIES - PART I

                                                      

Getting a Consistent Retirement Paycheck

 

Retirement income creation can be complex.  One financial professional recently shared that most of his clients hold stock and use dividends (and capital gain distributions) to provide for their regular income needs.  This is a fine strategy, though stock prices can be volatile and so can dividend payouts.  Especially for new retirees, the resulting portfolio fluctuations and income uncertainty can both be cause for anxiety.  Another method would include selling stock shares monthly, though individual stocks must also then be an acceptable holding for the retiree.  Of course, the retiree could buy a deferred annuity with a guaranteed income payout associated, though long holding periods often apply.

 

A simpler method to setting up a consistent portfolio paycheck is to do the following:

 

  1. Invest in a diversified portfolio of mutual funds and/or Exchange-Traded Funds (ETF’s).

  2. Choose to reinvest all dividends and capital gains.

  3. Systematically withdraw the same dollar amount from each asset each year.

  4. Adjust for inflation.

 

To illustrate the benefits of these steps, consider the following example of two different hypothetical retirees over the 10-year period ending 08/31/2018:  Retiree A receives dividends generated from the portfolio.  Retiree B reinvests dividends, but withdraws a set amount each year from the portfolio.  The differences in the retirement income experience are substantial.

 

Observations

Total returns after advisory fees (1.25%/year) were nearly identical at 8.00% and 7.98% respectively.  The amount of total withdraws over the period was greater for Retiree B, though Retiree A had a commensurately higher remaining portfolio value at the end of the period.  Most importantly, Retiree B received a consistent paycheck each year (paid monthly or quarterly), while Retiree A did not.  For instance, Retiree A received $94,282 in year 4 of retirement, but only $39,013 in year 5. 

 

Conclusion

There are a multitude of ways to generate a paycheck in retirement, though none as consistent as the regular sale of mutual fund and/or ETF shares, while reinvesting dividends.  In the case of individual stocks, selling shares can also create the same experience, but family stakeholders must be willing to accept the price volatility inherent with stock investing through retirement.

 

To measure your portfolio’s consistency or evaluate your retirement income plan, please contact Boulevard Wealth Management at (877) 664-BLVD or info@blvdwealth.com.

 

Upcoming Releases:

 

  • Winter 2018-2019 – Income Planning Part II: Re-balancing the Aggregate

  • Spring 2019 – Income Planning Part III: Keeping Cash in the Portfolio

Advisory Services through Boulevard Wealth Management, Inc. (dba BOULEVARD), a Registered Investment Advisor. Information provided has been prepared from sources believed to be reliable but is not guaranteed and does not represent all available data necessary for making financial decisions and is for informational purposes only. BOULEVARD and its representatives do not offer tax or legal advice through BOULEVARD.  Please consult the appropriate advisor.

 

 

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