|
E-mail this page to a friend!
Guarding Your Wealth for Senior Citizens
It’s all about Cash: Making Your Money Last in
Retirement
You need income and
nest egg increasing throughout your life
By Jeffrey D. Voudrie, CFP
December
2, 2006 - It’s vital that your nest egg last longer than you do. The
only way for that to occur is if the nest egg continues to grow over
time. If you take out more than you earn you are guaranteed to run out
of money at some point. If your nest egg continues to grow, though, it
will always last longer than you.
Last week, I talked about the two financial issues
that must be dealt with in retirement. The first is how much money you
can receive on a monthly basis. The second issue is how long you will
live.
(Read that article - see "What is a Retirement
Paycheck You Can Depend on?" in sidebar on left.)
The bottom line is that you need your income and
your nest egg to continue increasing throughout your life.
I believe it’s possible to do this by making a few,
simple adjustments in the way you view retirement investing.
Specifically, when it comes to managing their retirement portfolio, a
retiree needs to think in terms of ‘cash-flow’ instead of ‘income’.
Many find the decision to retire a very difficult
one to make. Not having to ‘punch the pay clock’ every day is certainly
appealing. The realization that there won’t be any more company pay
checks is frightening.
When a retiree thinks of replacing that paycheck he
or she typically thinks in terms of income. “The pay check provided
income. Since I’ll no longer receive the pay check, I instead need to
replace it with income from my investments.”
Retirees want to keep their principal intact, so
they need to be able to earn enough interest to live off of, right?
Wrong.
From an investment point of view, income is thought
of in terms of the interest. Investments that generate interest include
things like certificates of deposit, government bonds and corporate
bonds. On the other hand, investments such as stocks and real estate are
thought of as growth investments.
Traditional financial planning confuses the terms
‘safe’ and ‘stable’ when it says you should transition your portfolio
from a growth focus to an income focus. That means increasing the bond
portion of the portfolio and decreasing the stock portion. That’s also
why the traditional approach is typically only able to generate a 4%
income stream.
This thinking is flawed. Which is ‘safer’ over the
next 40 years—a portfolio that continues to grow and that allows you to
have a higher level of increasing income or one that only grows enough
to allow you to barely get by? The second one is more ‘stable’ because
it doesn’t fluctuate as much, but that stability might mean running out
of money.
‘Cash flow’ is different than income. Cash flow
focuses more on the ability to continue to steadily deliver monies to
replace that paycheck. But it’s not tied to certain types of
investments.
Picture a bucket with a small hole in the bottom.
If there is enough water in the bucket, the water flowing out the bottom
can continue without additional water being added. As long as additional
water is added in time, the outward flow doesn’t change. That’s ‘cash
flow.’
Now, think of a money market account as your
retirement bucket. Each month a pay check can be electronically
transferred into your daily checking account. As your money manager, my
job is to manage the portfolio such that I refill the ‘bucket’ when
needed.
That freedom allows me to use investments that
should provide a higher rate of return, such as stocks and real estate,
but where the return may come more from an increasing share price
instead of interest. When it comes time to replenish the bucket, I can
determine where to get those funds based on market, economic and
performance conditions.
I mentioned Joe in my last article. The key to
providing Joe his paycheck while growing his portfolio is that I don’t
have to put most of his money into interest-type investments. Instead, I
manage his portfolio to generate a higher overall rate of return.
Using these techniques, a properly managed
portfolio should be able to sustain a withdrawal rate of around 7% while
still growing the nest egg. But it must be managed properly. You can
apply these same principles yourself, and it’s easier than you think.
Contact me for a free special report that explores that issue.
Nationally-syndicated financial columnist and
Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth
money management services and advice to select private clients
throughout the USA. He’ll answer your financial question – FREE at
www.guardingyourwealth.com.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
Click to More Senior News on the
Front Page
Copyright: SeniorJournal.com |
