Clients often ask us to design an investment platform which is “safe” for the purpose of guaranteeing their income in retirement.
I often ask the question: would you like to be “safe” or “stable”? Most people believe the two are interchangeable. Clearly, they are not.
Stability is the ability to pay your living expenses in any economic environment. Safety is the ability to depend on a guaranteed amount of income at any time. You would think Safety is the way to go.
But let’s take a look at that. If I promised you a guarantee of $1000 per month for life, you would think that is a good thing, right? Not so fast. After ten years of creeping inflation, that $1000 might only buy $750-$800 (or less) of goods and services. Where will you go for the rest of that income? People usually start taking it from the invested assets, which leaves less to earn income. And that spiral does not stop. Soon they are forced to try to get an outrageous level of return (and a heightened degree of risk) which makes them not sleep at night.
The answer is to have some portion of your income in retirement in “safe” type assets, like bonds and CDs and the rest of it in some dividend-producing stocks and income-producing real estate. Unless you consider using the equity in your house under a reverse mortgage, then you can’t count your house as a real estate investment.
Packaging your assets into a strategy of producing income in retirement is not as simple as it seems. Retirement is not an arbitrary date upon which everything stops. You may decide to earn some money in retirement which would put less stress on your investment portfolio and give it some time to grow even further. On the other hand, you may not have that luxury due to poor health or no desire to do so.
Talk to your advisor about how to begin to take money from your assets, Social Security and pensions and how to get it to be sustained over all of your retirement years. Contact us, we would love to help.
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