In recent weeks the contentious debate in Washington over the debt ceiling increase, the nation’s budget and deficits, and the Standard & Poor’s downgrade of our nation’s credit rating, has convinced most Americans that the United States has been borrowing heavily to pay its bills. To make matters worse, other economic indicators are pointing to slowing economic growth, raising the concern among some investors that we may be headed for another recession. Yet despite these grim developments, the world financial markets still view the U.S. as a strong credit that will be able to pay its bills and continue to …Read More
In the previous five articles in the series on Building and Managing a Retirement Portfolio, we addressed several investment management issues, challenges, and recommendations for those who are ready to or have already retired.
Now let’s look at an investment and spending plan that offers the following potential benefits critical to reduce our chances of running out of money:
1. Portfolio diversification, which serves to lower portfolio risk, provides both current income and future portfolio growth, increasing tax-efficiency.
2. Sufficient liquidity to meet both planned and unexpected cash needs.
3. Flexibility to avoid the damaging effects of selling assets during …Read More
Once an investor decides how much to take from a portfolio, next is determining from which account type to withdraw from first.
Most retirees have taxable accounts, tax-deferred (traditional employer plans and IRAs) accounts, and tax-free (Roth employer plans and IRAs) accounts. It is important to establish the proper sequence of withdrawals to improve the portfolio’s tax efficiency and longevity. The primary determinant of spending order is taxes. Absent taxes, and assuming the accounts earn the same rate of return, an investor would be indifferent as to the sequence of withdrawals because any order would produce the same results.
The… Read More
One of the most important decisions investors face is the asset allocation of their portfolio. For the retiree it will be inextricably tied to a second critical decision: the spending strategy used during retirement.
This is simply the percentage of a portfolio invested in the various asset classes such as stocks, bonds, and cash. It should be the top priority in constructing and managing a portfolio because it determines almost all of the risk and performance an investor experiences, and greatly affects the chances of meeting goals. Since we can’t predict the future and don’t know which asset …Read More
For most Americans, their working years are their saving years. Their goal is simple, save aggressively and invest prudently to accumulate the retirement nest egg they’ll need to live on. Once they retire, the goal becomes converting that nest egg into a predictable “retirement paycheck” that will support their lifestyle for as long as they live. Accomplishing this requires carefully balancing between generating sufficient current income, while addressing the risks of inflation and poor investment returns that can affect the future growth and deplete the portfolio prematurely.
We’ll discuss some strategies to achieve these goals for the portfolio in the …Read More