SilverLink - Fall 2008 - (Page 24)

As I sat in the stands watching the College World Series this past June (congrats to Fresno State—from underdogs to wonder-dogs), I saw some distinct parallels between the game of baseball and the necessity of retirement income planning and asset allocation. There’s a guy at the plate, a guy on deck and a man in the hole. When it comes to asset allocation at the time you reach retirement, your funds should be structured in much the same manner, providing: • • • immediate current income (at the plate) funds accumulating for later use (on deck) funds structured for long-term growth, to protect against inﬂation (in the hole) Using this strategy, your portfolio will be structured with a good balance of guarantees and risk. There’s peace of mind in knowing that you have guaranteed income for 10 years. The ﬂuctuations in the stock market won’t seem like a daily event and you won’t have as much worry, because two-thirds of your portfolio isn’t intended to be used for at least 10 years. This strategy can be accomplished quite easily. However, as you assemble the component parts, there are a few details to be aware of: • The immediate annuity will generate a higher level of income if interest rates are high on the day you lock in the income. You’ll want to shop around for the best rates and also pay attention to the ﬁnancial stability of the company issuing the contract. Experience has shown that there’s generally an inverse relationship between the income guaranteed and the ratings of the company. The income generated on the annuity will be higher, net of taxes, if after-tax money is used to purchase the income stream rather than IRA money. When you use after-tax money, a portion of each monthly payment is considered a return of cost basis and is, therefore, non-taxable. The money on deck and in the hole will most likely be invested in a portfolio of mutual funds or exchange traded funds, rather than simply buying individual stocks or bonds. For higher-net-worth retirees who can afford to take more risk, a portion of the in the hole money should be invested in private equity and/or real estate. The use of a variable annuity might be appropriate here, but is beyond the scope of this article. (See “Pushing Wealth to the Next Generation” in the Winter 2008 issue of SilverLink, where I detailed various annuity products including the advantages, disadvantages and pitfalls of each type.) The Game Plan Working on the assumption that you’ve accumulated one million dollars by retirement, the following is an overall strategy that more and more seniors are using to protect and grow their assets: • • “At the plate” money - Use roughly one-third of the $1 million to purchase a 10-year guaranteed income stream. In this case, you are implementing an “immediate ﬁxed annuity.” The principal is guaranteed by a life insurance company and the payments you receive are ﬁxed. Should you pass away during the 10-year payout period, the unpaid balance reverts to a named beneﬁciary. The beauty of this strategy is that, unlike bonds that are often used to produce income, your principal isn’t negatively affected by interest rate ﬂuctuation. • • • • “On deck” money - Once you have the peace of mind of a guaranteed income (above), allocate the next one-third of the money to a balanced portfolio of 60 percent stocks and 40 percent bonds. The objective is to take a reasonable risk that is, hopefully, enough to beat inﬂation by 2 percent or more on a net after-tax basis. Ten years from now, this pool of money will be used to purchase another 10-year block of income. Given the allocation, it will ideally purchase an income stream 10 years from now that has the same purchasing power provided by today’s 10-year income. • “In the hole” money - The ﬁnal one-third of the $1 million will be invested more aggressively, because there is no intention of tapping the money for at least the next 10 years (and probably not even then). This amount will be allocated to a 100 percent equity portfolio and then suballocated between Domestic and Foreign stocks and with varying market caps (large, medium and small) and styles (growth and value). Planning for retirement isn’t an exact science and there are many different ways to construct a portfolio. The strategy suggested in this article is one way to allocate funds and layer investment risk that is easy for most people to understand. As always, when creating retirement strategies, your best resources are your personal ﬁnancial planner and/or attorney. You can also count on SilverStone Group to provide objective, expert advice. We can’t guarantee that you’ll hit a home run, but we’ll do everything in our power to prevent you from striking out. CONTACT JEFF SHARP AT 402.96 4.54 40 OR JSHARP @ SSGI.COM 24 http://www.nxtbook.com/nxtbooks/silverstone/silverlink_2008winter/index.php?startid=31 http://www.nxtbook.com/nxtbooks/silverstone/silverlink_2008winter/index.php?startid=31 http://www.nxtbook.com/nxtbooks/silverstone/silverlink_2008winter/index.php?startid=31

Table of Contents Feed for the Digital Edition of SilverLink - Fall 2008

SilverLink - Fall 2008 Table of Contents Risk Management: Toto A Marriage Made to Last Cashier’s Check Fraud? Selection Validation Digital Tool Box When the Curtain Falls Lightning Strikes Increased Fuel Economy Employee Benefits: To Infinity & Beyond Securing Retiree Healthcare Private Client Services: Batter Up! Shaking Things Up STOLI Under Attack Client Spotlight: Bellevue University Internal Happenings: SilverStone Group Wellness Activities Group

SilverLink - Fall 2008

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