Insights
&
Musings
Embracing Longevity: Planning for a Fulfilling Future
As life expectancies continue to increase, the concept of retirement is evolving. At Berkshire Wealth Group, we understand that longevity planning is not just about financial security—it's about creating a comprehensive strategy for a fulfilling and purposeful life that may span several decades beyond traditional retirement age.
Living Longer and Living Well
It is exciting to have more time to pursue passions and to spend with loved ones, and it also requires careful planning to ensure your resources last as long as you do. This is where longevity planning comes into play.
Comprehensive Longevity Planning
We are committed to helping our clients navigate the complexities of longevity planning. Our approach goes beyond mere financial calculations, encompassing various aspects of life to ensure a holistic strategy for your extended future. Through our affiliation with Raymond James we have a wealth of resources available to our clients[1]:
Financial Resources
Our robust platform of financial tools and services is designed to support your long-term goals:
- Advanced portfolio management strategies
- Tax-efficient investment options
- Retirement income planning tools
- Social Security optimization analysis
Health and Wellness Support
We recognize that health is wealth, especially in later years. Our resources include:
- Long-term care insurance options
- Healthcare cost projections
- Wellness program partnerships
- Lifestyle and Purpose Planning partnerships
Retirement is no longer about slowing down—it's about redirecting your energy. We offer:
- Career transition planning
- Volunteer and philanthropy planning
- Travel and leisure budgeting tools
Technology at Your Fingertips
To keep you connected and in control of your financial life, Raymond James provides cutting-edge technology solutions:
Client Access: Our secure online portal allows you to view your accounts, track your investments, and access important documents anytime, anywhere[2].
Mobile App: Stay connected on-the-go with our user-friendly mobile application, offering a customizable dashboard and streamlined navigation[3].
Personalized Guidance
While we offer a wealth of resources, we believe that personalized guidance is irreplaceable. Our team is dedicated to understanding your unique situation and aspirations. We're here to help you:
- Develop a tailored longevity plan
- Adjust strategies as your life evolves
- Navigate complex financial decisions
- Coordinate with other professionals (e.g., attorneys, CPAs) for comprehensive planning
Empowering Your Future
We are committed to empowering you to live your best life, no matter how long that life may be. Our longevity planning resources are designed to give you the confidence and flexibility to embrace the future on your terms.
Remember, it's never too early—or too late—to start planning for a longer, more fulfilling life.
To explore how we can help you create a personalized longevity plan that aligns with your unique vision for the future.
Citations:
[2] https://www.raymondjames.com/client-resources
[3] https://www.raymondjames.com/client-resources/client-access-tour/client-access-mobile
Generating Income from Investment Portfolios: Strategies and Considerations
Investors seeking to generate income from their portfolios have two primary strategies to consider: income-focused investing and total return investing. Each approach has its own benefits and drawbacks, and the choice between them depends on the investor’s goals, risk tolerance, and need for sustainable income that keeps pace with inflation.
I had a call with a client who was interested in starting to draw income from her portfolio last week. While this client and I have been working together for over 20 years, drawing income on a regular basis from the portfolio was a brand new concept. There is more than one way to achieve income goals, which made the learning curve feel even steeper. I wrote this piece to help her wrap her head around the various approaches and each has their pros and cons. Here are some vocabulary terms to remember:
Income = Dividends (from stocks) or Interest (from bonds).
Yield = Income (Dividend or Interest Payment) / Price
Total Return = Income + Capital Appreciation
Investors seeking to generate income from their portfolios have two primary strategies to consider: income-focused investing and total return investing. Each approach has its own benefits and drawbacks, and the choice between them depends on the investor’s goals, risk tolerance, and need for sustainable income that keeps pace with inflation.
Income-Focused Investing
Income-focused investing involves building a portfolio that generates income through dividends and interest payments. This approach appeals to those who prefer not to sell assets and want to maintain their principal. However, it has several limitations:
Risk of Concentration: Focusing on high-dividend stocks or high-yield bonds can lead to a less diversified portfolio, increasing risk if these investments underperform .
Inflation Risk: Relying solely on income can lead to a loss of purchasing power over time, as dividends and interest may not keep up with inflation .
Tax Inefficiency: Income from interest is often taxed at a higher rate than capital gains, potentially reducing after-tax returns .
Market Dependency: Dividend payments can fluctuate with the economy, potentially leading to inconsistent income .
Total Return Investing
Total return investing involves considering both income (dividends and interest) and capital gains (appreciation in asset value) to meet income needs. This strategy offers several advantages:
Diversification: It allows for a more diversified portfolio, reducing risk by spreading investments across various asset classes .
Flexibility: By focusing on total return, investors can adjust their withdrawals based on market conditions, potentially preserving capital during downturns .
Inflation Protection: A total return approach can better protect against inflation, as it includes capital appreciation which often outpaces inflation .
Tax Efficiency: It can be more tax-efficient, as capital gains are typically taxed at a lower rate than income .
However, total return investing also has its challenges:
Complexity: It requires more active management and understanding of market dynamics to optimize both income and capital gains .
Potential Overdistribution: There is a risk of depleting the portfolio if withdrawals exceed sustainable levels, especially if based on past capital gains .
Sustainable Withdrawal Strategies
Regardless of the chosen strategy, maintaining a sustainable withdrawal rate is crucial to ensure the portfolio lasts throughout retirement. A common guideline is the “4% rule,” which suggests withdrawing 4% of the portfolio’s value annually, adjusted for inflation. However, this rate may need adjustment based on market conditions and individual circumstances.
In conclusion, while income-focused investing provides a sense of security by preserving principal, total return investing offers greater flexibility and potential for growth. Investors should carefully assess their financial goals, risk tolerance, and income needs to determine the most suitable approach for generating sustainable income from their portfolios.
Examples
Here are some examples of how an investor might implement income-focused and total return strategies, along with examples of sustainable withdrawal strategies:
Income-Focused Investing Example
Portfolio Composition
Dividend Stocks: An investor might choose stocks from companies with a history of paying consistent and increasing dividends.
Bonds: The portfolio could include government or corporate bonds that pay regular interest, such as U.S. Treasury bonds or investment-grade corporate bonds.
Real Estate Investment Trusts (REITs): These can provide income through dividends generated from real estate holdings.
Income Generation
The investor receives regular income from dividends and interest payments.
For example, if the portfolio is worth $1,000,000 and generates a 3% yield, the investor would receive $30,000 annually in income.
Total Return Investing Example
Portfolio Composition
Balanced Mix of Assets: The portfolio might include a mix of stocks, bonds, and other asset classes, such as international equities and alternative investments.
Growth Stocks: These stocks may not pay high dividends but have the potential for significant capital appreciation, such as technology companies.
Index Funds/ETFs: Broad market index funds or ETFs can provide exposure to a wide range of assets, contributing to both income and growth.
Income Generation
The investor focuses on both income and capital gains.
For example, if the portfolio appreciates by 6% in a year and yields 2% in dividends, the total return is 8%. The investor might withdraw 4% for income, leaving the remaining 4% to grow the portfolio.
Sustainable Withdrawal Strategies
4% Rule Example
An investor with a $1,000,000 portfolio withdraws $40,000 annually (4% of the initial portfolio value), adjusting for inflation each year.
This approach aims to provide a steady income stream while preserving the portfolio’s longevity.
Dynamic Withdrawal Strategy
The investor adjusts withdrawals based on market performance. For instance, they might withdraw less during a market downturn to preserve capital and more during strong market years.
This strategy can help mitigate the risk of depleting the portfolio too quickly.
Bucket Strategy
The investor divides the portfolio into “buckets” based on time horizon:
Short-Term Bucket: Holds cash and short-term bonds for immediate income needs.
Medium-Term Bucket: Contains a mix of bonds and dividend-paying stocks for income over the next 5-10 years.
Long-Term Bucket: Invested in growth-oriented assets for future capital appreciation.
These examples illustrate how investors can implement different strategies to generate income while considering sustainability and inflation protection. The choice of strategy should align with the investor’s financial goals, risk tolerance, and market outlook.
Any opinions are those of Kathy Reisfeld and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Prior to making an investment decision, please consult with your financial advisor about your individual situation.