Planning the Intelligent Retirement Income Stream
The trek Nando Parrado and Roberto Canessa made to Santiago from deep in the Andes Mountains following the Uruguayan rugby team’s plane crash in October of 1972 was a legendary winter mountaineering expedition. Fighting -35F temps in civilian clothes while trying to stabilize the injured, grieve for the dead and simply stay alive made for challenging circumstances in which to plan a 10-Day trek. The lack of technical climbing gear on glaciated, 60-degree, 3,000 vertical foot slopes made it a death march, yet with the creative use of the contents of one crashed plane, they succeeded and saved sixteen lives! Effectively planning a multi-decade long retirement income stream in a materialistic, high inflation society, post the defined-benefit pension era, and amidst unfunded social programs and spiraling national deficits may be a comparably challenging endeavor! Creatively identify the right mix of the right income strategies to source your long-term retirement income needs:
Let’s start by recognizing high interest cash accounts alone are not a solution, but a trap. Volatility is not the enemy, greenbacks are. Never forget that. The cash return is not sufficient to sustain you financially; you must assume some risk to beat inflation long-term after taxes.
Well-managed rental real estate properties can provide a competitive, reliable, and inflation-resistant income, and present market dynamics suggest the appreciation homeowners have enjoyed in recent years may continue. Maintenance and repair costs can eat income as later retirement approaches, so plan property management and liquidations in advance.
Various annuity types can provide a competitive lifetime income stream, and even offer unique riders that may benefit you further. Disadvantages include complexity, so thoroughly understand what you are buying, and high costs, so cap your allotment to this strategy to one-third of retirement capital.
A portfolio of bonds can offer higher income than stocks with less volatility but may not produce sufficient returns to keep pace with inflation long-term. Present market dynamics seem favorable towards high quality bonds.
A systematic withdrawal funded by periodic liquidations of securities within a diversified portfolio offers short-term income predictability, simplicity, and investment flexibility. Bear to mind that prudent asset management within this strategy is critical: high costs and low returns can cause withdrawals to consume principle, and absent principle withdrawals cease; low costs and high returns can make this a winning strategy.
A careful selection of capital-efficient, dividend-paying, industry-dominating stocks offers near zero expenses and an increasing and steady stream of retirement income with substantial appreciation potential. The risk is a bear market can alter both ROR issues dramatically.¹
Real Estate Investment Trusts (REIT’s) and Master Limited Partnerships (MLP’s) can provide competitive income streams but may not be liquid, and thrive in distinct market dynamics, can delay tax returns due to late K-1 1099 distribution, and are generally more leveraged (indebted).
Required Minimum Distributions (RMD’s) can remain invested for those who overshot the income goal, but otherwise form a base of retirement income with other fixed income sources. For 501(c)(3) givers, Qualified Charitable Distributions (QCD’s) should be set up at age 70½ for all such gifting.
Just as Nando and Canessa had to assess the net benefit and weight of every item in the plane to reach Santiago, whether to carry or to leave, we must weigh these and other income options, not only to reach our income destination, but in a manner that is smart from both a tax and an estate planning perspective. May God bless your effort! Shaun.
“In an abundance of counselors there is safety” ~Proverbs 11:14
“The heart of man plans his way, but the Lord establishes his steps,” ~Proverbs 16:9
1 Smart Asset, “How to Create a Retirement Income Stream, August 20, 2024
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author.
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