One of the first things people do once they get serious about planning and saving for retirement is to look to a retirement calculator to let them know how much they need to save, or how much longer they need to work to be able to retire. There’s nothing wrong with that.
The thing is, each and every person’s situation is completely different. What might be the right time to retire for one person will not be right for all. The same goes with how much money you’ll need.
Someone who is happy staying home and gardening during their retirement years will most likely need less than someone who plans to travel frequently to spend time with friends or family. These are the types of things that a retirement calculator might not take into consideration before giving you a certain amount or a time frame for your retirement.
When you work with us, you can rest assured we’ll take the time to get to know you and your situation before making any recommendations about how much you will need for retirement, or when the best time to retire will be. This is something a retirement calculator can’t do.
At Sound Income Strategies, LLC we are proud of the fact that we take the time to craft customized portfolios of actively managed fixed income investments for each and every client. In other words, we don’t take shortcuts.
In addition to looking to retirement calculators for answers about the resources they’ll need during retirement, many will also look to retirement income funds to help them generate the income they will need during retirement.
The problem is, when an advisor talks about income funds, they are usually referring to mutual funds, and more specifically, they’re most likely talking about bond mutual funds.
The thing is, bond mutual funds include costs, risks, and tax implications that can be bad for your financial health. The ease and convenience these mutual funds offer your advisor come a cost to you.
That’s why we believe that mutual funds are the disease of ease that’s putting Americans’ retirement at risk.
We believe that a sound retirement strategy is one that steers clear of the dangers that can accompany mutual funds. Instead, it should include an actively managed portfolio of individual bonds, or other bond-like instruments.
Best Retirement Income Streams
If you’re wondering about the best ways to establish reliable streams of income for your retirement, congratulations! You are one step closer to achieving your goals for retirement. That’s because during retirement, it’s income that you will need to cover your expenses.
Unfortunately, many people don’t come to this realization until after they have retired. You see, one of the biggest mistakes retirees and those close to retirement make is to think that the same methods they used to save for retirement during their working years will continue to work once they retire.
As we work and save towards retirement, we are in what’s known as the accumulation stage of our lives. Then, when we retire, we enter the distribution stage—where we’ll need to start taking withdrawals from our retirement savings. In other words, it’s when you need the income generated from your investments to be both steady and reliable.
This is where Investing for Income comes in. By focusing your efforts on income-generating investments options, you could establish consistent and renewable streams of income for your retirement. Also, chances are that we can help you do it while reducing your exposure to stock market risk.
Making this important shift to Investing for Income is, in our opinion, the best way to establish reliable retirement income streams that you can count on.
How to Build a Retirement Income Portfolio
As we mentioned earlier, one of the first steps in building a retirement income portfolio is to avoid bond mutual funds. Bond mutual funds carry risks, costs, and tax implications that can be reduced, or even eliminated, by investing in a diversified portfolio of individual bonds, or other fixed-income securities.
That’s because when an investor buys an individual bond, they have two important guarantees:
1. They’re guaranteed a fixed rate of interest for the life of the bond
2. When the bond matures, they’re guaranteed their principal back – assuming there have been no defaults.
With these two assumptions, an investor can know with much greater certainty what their financial future holds. This is the type of certainty that most traditional stock market-based retirement plans can’t offer.
So, how do bond mutual funds compare to individual bonds?
Well, both guarantees that are inherent in individual bonds are “off the table” when it comes to bond mutual funds. First, bond mutual funds don’t pay a fixed rate of interest; it fluctuates. Secondly, bond mutual funds never mature; your investment in the fund will continue until you liquidate it. So, why does this matter?
Most investors understand the inverse relationship between interest rates and bond values. When interest rates go down, bond values tend to go up, and vice versa. If something happens in the bond market to cause bond values to drop, a portfolio of individual bonds and bond mutual funds might drop the same in value.
However, if you’re holding individual bonds, the loss is simply a paper loss because you’re still going to receive your fixed interest payment, and when the bond matures, you’re still going to get your principal back.
But if you’re holding bond mutual funds, then it’s not a paper loss; it’s a real loss because remember, those bond mutual funds never mature. That’s one reason why bond mutual funds can be a lot riskier than individual bonds.
Another big reason why investing in a bond mutual fund might not be in your best interest is the high costs associated with them. The fee structure of most mutual funds can be very complex, but in the end these fees can end up eating away at the gains the fund manages to earn. These fees do not exist with individual bonds.
So, if you’re wondering about the best way to build a retirement income portfolio, step one might be to avoid bond mutual funds.
Retirement Income Strategies Book
In 1999, while many on Wall Street believed the sky was the limit, our Founder, David J. Scranton, believed something different. His knowledge of stock market history led him to believe that the stock market was due for a major correction. As a result, David was able to help many of his clients avoid damaging losses in the two corrections that began in 2000 and 2007.
It was at this time that David made the decision to change his business model from one focused on stock market investments to one centered around “defensive” income-based financial strategies designed to protect clients from dramatic stock market fluctuations and economic uncertainties.
Since then, David has gone on to become a two-time Amazon Bestselling Author, host of the national TV show The Income Generation with David J. Scranton, and the Founder of Sound Income Strategies, LLC, The Retirement Income Store®, and Advisors’ Academy.
His most recent book, The Retirement Income Stor-E: The Story behind the Launch of The Retirement Income Store, quickly climbed Amazon’s list of Hot New Releases in Retirement Planning upon its publication.
The simple truth is that those who are retired, or within 10 years of retirement, can’t afford to ride out another catastrophic stock market drop like the two we’ve already experienced since the turn of the century.
Instead, David uses engaging stories to outline what he believes is a much better and safer method to planning and saving for retirement, one that doesn’t involve taking on more stock market risk.
One of the lessons shared in its pages pertains to retirement withdrawal strategies.
Many people give good thought to the way they save for retirement, but few give serious consideration to the way they will take withdrawals once they are retired. Here’s why it matters.
When it comes to planning and saving for retirement, one of the biggest mistakes people can make is spending down their principal—especially during the early years of retirement.
It’s a concept that’s been around for centuries and it seems fairly easy to understand. Yet many fail to get it right. If you get it wrong, it can lead to one of the biggest financial mistakes a retiree can make.
It takes a well-planned strategy to ensure that the interest and dividends you’re generating from your investments are sufficient to satisfy the withdrawals you’ll need to make to cover expenses during retirement.
The problem arises when the interest and dividends that your investments earn aren’t sufficient to cover your expenses during retirement. The problem is magnified if you’re invested in the stock market using mutual funds and the market happens to be down.
If that’s the case, the money you’ll need to withdraw will most likely have to come from principal. Each month that you take withdrawals while the market is down, it’s likely that you will have to liquidate even more shares of your fund to get the money you need. This is a vicious cycle that could lead to you running out of money before you run out of life.
The good news is that these types of situations can be avoided by having a well-thought-out financial plan in place—one focused on generating income that you can count on well into retirement.
To learn more about The Retirement Income Stor-E, visit the book’s page on Amazon.com.
