ROAD OF RETIREMENT INCOME Series | PART 7 of 7

Use a globally diversified portfolio
that generates enough income
to cover the current spending
needs without having to sell assets.

CONVERTING SAVINGS INTO MONTHLY SPENDING
PART 7 of 7 Series:
THE ROAD OF RETIREMENT
The Process of Managing Retirement Income

Retiring baby-boomers, who can expect to spend 30 to 40 years in retirement, will likely need a framework for converting their savings into a sustainable monthly income stream. Investors who are on the road of retirement all share some common fears including spending too much, principal loss from market volatility, loss of purchasing power due to inflation, and the biggest fear of all, running out of money.

As we have all experienced over the past few years, retirement plans designed to fund annual spending solely through the sale of the assets are exposed to the vagaries of the market.

We will outline how to convert the retirement savings to a monthly spending amount, using an approach that balances the need for current income and future growth.

The objective of this conversion process is to utilize the strategies outlined in this series to build the framework that may help a retiree sustain a lengthy retirement time frame. This process will use a globally diversified portfolio with a cash flow reserve ladder structure that strives to generate an attractive level of current income with the possibility for growth.

Cash Flow Reserve Ladder

This ladder provides three rungs aligning the most liquid investments to fund near-term spending needs, while the more volatile, growth-oriented investments are held inside a diversified portfolio with a five-year investment horizon.

Using a cash flow ladder, the retiree writes a check each month from the money market fund within the cash flow reserve and deposits it into their checking account. Providing a specified amount each month is a key attribute of the structure while also giving the retiree some separation from the larger pool of assets in the investment portfolio. This separation can help reduce the desire to overspend.

Within the various levels of investments from the cash flow reserve and investment portfolios, the interest and dividend income generated will not initially be re-invested. Instead this income will be deposited into the money market fund to continually replenish the cash flow reserve. However, if the income stream grows adequately enough to cover the spending amount and more, the excess is reinvested in the investment portfolio. The concept is to use a globally diversified portfolio that generates enough income to cover the current spending needs without having to sell assets. However, whatever portion of the spending is not covered by the current income will come from selling assets opportunistically into the market to refill the cash flow reserve back to the two-year spending level.

Using a Globally Diversified Asset Allocation

Given the opportunities globally to invest in companies that have the ability and willingness to pay a high and growing dividend, the equity portion of the retirement portfolio will be allocated to these types of income investments. The balance of the portfolio will be allocated into municipal bond investments to help preserve capital, offer some diversification and provide a tax-efficient interest income stream.

• The cash flow reserve portion of the portfolio represents approximately two years'  worth of spending and is equally divided between a short-term municipal bond fund and a municipal money market account. A short-term municipal bond fund is used since it may provide a higher income stream with a historically limited level of  volatility. The cash flow reserve receives income generated from the various  investments and is also the source from which the monthly spending check is written by the retiree for deposit into their checking account.
• Within the investment portfolio there is an additional 25% or approximately four to five years of spending allocated to intermediate-term (10-year) municipal bonds, which can be liquidated if there is a protracted decline in the equity markets. These municipal bond investments can help provide a more tax-efficient income stream and some good diversification benefits to the growing dividend stock strategy. Although the income from municipal bond investments is exempt from regular federal and state income tax  they may be subject to the alternative minimum tax (AMT).

In terms of income expectations from the municipal bond investments, while the current level of income may be relatively attractive, they are not geared to grow. A common flaw of retirement portfolios is an over-allocation to fixed income investments, leaving the portfolio highly susceptible to the loss of purchasing power.

Using a global approach to investing in companies that provide growing dividends allows an opportunity to improve portfolio diversification by industry, sector, and country.
Using the Cash Flow Reserve Ladder, with its focus on maintaining two years of liquidity in the reserve, together with an allocation to municipal bonds, allows a portfolio to benefit from the growing dividend income stream while also alleviating the need to sell these more volatile equity investments at inopportune times.

Best Practices

A structured process for converting hard-earned retirement savings into a monthly spending amount should be attractive to the majority of baby-boomers looking to retain control of their assets in retirement. Three to five years before your planned retirement date, begin investing in a well managed globally diversified portfolio of high and growing dividend stocks.

One of the best ways to increase the potential for a higher dividend income stream at the time of retirement is to get a head start.


Reinvest the growing dividend income that's generated before the retirement begins, thereby buying more shares and increasing the level of dividend income available when retirement distributions finally do begin. And remember to revisit the retirement plan annually with your financial advisor.

Let us get you started!
Online at our website: www.LamonAndStern.com
Call us at 770-951-8411

 --------------------------------------------------------------------------------------------------

Disclosures:
Following these strategies does not assure or guarantee sustainability of a retirement portfolio or better performance, nor do they protect against investment losses.

Investments in stocks and bonds are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity.

Investments in a money market are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

Investing outside the United States, especially in emerging markets, entails special risks, such as currency fluctuations, illiquidity, and volatility.

Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

ROAD OF RETIREMENT INCOME Series | PART 5 of 7

Quickly liquidate assets
into potentially more
favorable investment markets.

BUILDING A CASH FLOW RESERVE LADDER
PART 5 of 7 Series:
THE ROAD OF RETIREMENT
The Process of Managing Retirement Income

One of the challenges that confronts retirees and their advisors is how to prevent having to sell their hard earned retirement assets at the wrong time. 

We have all heard the age old investment adage "Buy Low and Sell High," which tells us to buy assets when they are out of favor but to time the disposition of the assets when the markets are in your favor.

This timing is even more important for retirees since they are liquidating assets to support expenses and not reinvesting. Therefore, one goal for each retiree and their advisor is how to prevent being in a position of having to sell their retirement assets for less than their potential worth.

When structuring a retirement investment portfolio, there are two tenets that can be followed which may help achieve this goal.

• The first is to invest the retirement savings in a well-diversified portfolio that includes cash, fixed income, and equity investments. Preferably, the equity investment allocation should focus on providing a high and growing dividend income stream. 
• The second is to implement a Cash Flow Reserve (CFR) Ladder that can provide monthly income during retirement and can allow the retiree and their advisor the ability to dictate when to sell assets into the market. 

Historically, fixed income and equity assets have had a tendency to be favorably priced at different times in the market, giving the retiree the ability to time the disposition of the retirement assets when it may be most optimal. Using a ladder structure that includes a cash flow reserve for near-term expenses, and both fixed income and equity assets for intermediate and longer-term expenses, is one structure that may help achieve this goal.

The consequences of not being diversified and then forced to sell into a bear market can be significant.
Structuring a Cash Flow Reserve Ladder

A Cash Flow Reserve Ladder is comprised of three "rungs" that strive to align the least volatile assets to meet the retiree's near-term expenses while giving equity assets the opportunity to grow. This potential growth of the equity investments is intended to offset the eroding effects of inflation on the retirement savings.

Checking Account

On the first of each month, the retiree writes a check from the cash flow reserve and deposits it into the checking account to pay for expenses. This provides a monthly cash flow, which from a behavioral finance perspective is very healthy and allows the retiree to budget for monthly spending accordingly.

Cash Flow Reserve
The cash flow reserve is comprised of two years' worth of spending needs in short-term assets such as a money market account and possibly a limited-term bond fund. The retiree draws a check from the cash flow reserve to deposit into the checking account at the beginning of each month. The relative liquidity of this rung can provide the retiree with the ability to cover two years of spending. Having two years' worth of disposable assets can be key to helping alleviate ill-timed selling into a bear market. At the end of each year, or as the market dictates, the advisor will sell either fixed income or equities from the investment portfolio to refill the cash flow reserve to cover the next two years of expenses.

Investment Portfolio

Fixed income investments have historically performed better when equities are out of favor; therefore, having a balanced portfolio of fixed income and equity investments can help alleviate selling retirement assets at a less opportune time in order to fund retirement spending. In this rung of the ladder, there will typically be enough fixed income investments to pay for an additional four to five years of spending. Also included in this rung is an allocation to equity investments, which have historically been more volatile than fixed income assets but also provide the potential for higher returns over time. While the equity investments may provide the necessary growth to help offset the eroding effects of inflation in retirement, retirees also need to have the flexibility to sell assets when the markets are attractively valuing those investments. The assets from this rung are used to replenish the funds in the cash flow reserve as needed. Again, the goal is to have the flexibility to sell either the equity or the fixed income assets at an opportune time.

Asset Allocation Alternatives
Now that we know the basic structure and operation of a Cash Flow Reserve Ladder, let's discuss just a few of the many ideas for how the retirement assets can be allocated to each rung. The most appropriate investments will vary depending on an individual's needs and investment objectives and should be discussed with a financial advisor.


Retirement Investment Portfolio
CASH FLOW RESERVE LADDER + WELL-DIVERSIFIED RETIREMENT PORTFOLIO

The Cash Flow Reserve Ladder approach allows the retiree and advisor time to liquidate assets into potentially more favorable markets.

Using a high and growing dividend-paying stock fund in this rung may provide the double benefits of a growing dividend stream to contribute to the current income needs of the retiree and the potential growth that is historically associated with equity investments.

Utilizing the structure of a Cash Flow Reserve Ladder with a well-diversified retirement portfolio during the distribution phase of retirement can provide retirees with the necessary foundation and discipline to alleviate selling their retirement assets into a bear market. The cash flow reserve has the ability to provide two years of liquidity, thus allowing expenses to be met readily. The investment portfolio has a mix of intermediate-term fixed income and equities focusing on a high and growing dividend income stream that may be liquidated during opportune times in the market to refill the cash flow reserve. Hopefully, this type of structure can help the retiree stay on plan and meet expenses.

If you would like us to mail you the information KIT with a FREE CD discussing the ins and outs of managing your retirement income please contact us today.
Review it online here: www.Thornburg.com

Let us get you started!
Online at our website: www.LamonAndStern.com
Call us at 770-951-8411

 --------------------------------------------------------------------------------------------------

Disclosures:

Following this strategy does not assure or guarantee sustainability of a retirement portfolio, better performance, or protect against investment losses.

Investments in a money market are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

Rebalancing - refilling the money market fund with an allocation from the equity account at the beginning of each year, except in 2009, when the decision was made not to replenish and ride through the turbulent equity and fixed income market. No further rebalancing was necessary.
 
Monthly Cash Flow - monthly check withdrawn from Cash Flow Reserve and assumed placed into checking account at the beginning of each month.

The Consumer Price Index (CPI) measures prices of a fixed basket of goods bought by a typical consumer, including food, transportation, shelter, utilities, clothing, medical care, entertainment and other items. The CPI, published by the Bureau of Labor Statistics in the Department of Labor, is based at 100 in 1982 and is released monthly. It is widely used as a cost-of-living benchmark to adjust Social Security payments and other payment schedules, union contracts and tax brackets. Also known as the cost-of-living index.

The S&P 500 Index is an unmanaged broad measure of the U.S. stock market.

ROAD OF RETIREMENT INCOME Series | PART 4 of 7

A decrease in the spending
amount during an extended
bear market is vital for improving
the sustainability of a
retirement portfolio.

ENDOWMENT SPENDING POLICY
PART 4 of 7 Series:
THE ROAD OF RETIREMENT
The Process of Managing Retirement Income

Retirees and their advisors should thoughtfully establish a spending plan to balance the desire to maintain a consistent lifestyle with preserving assets for a retirement that could last 30 to 40 years. 

To achieve this balance, a spending policy should be developed to determine what percentage of the retirement savings will be spent initially and how this amount will change over time to reflect the effects of inflation and the performance of the underlying investment portfolio.

A spending amount is defined as the amount of money withdrawn from the retirement savings to cover expenses. All too often they increase this amount annually by a cost of living adjustment as measured by the Consumer Price Index (CPI). This spending policy is referred to as a "lifestyle" policy since it is intended to provide for a consistent standard of living indexed to inflation.

The lifestyle spending policy, although attractive due to its simplicity, is flawed in two important areas.

   1. This policy does not tie the spending level to the performance of the underlying investment portfolio. As a result, the lifestyle policy never requires the retiree to slow or reduce the spending level during an extended bear market.

   2. In periods of high inflation, spending amounts may increase too rapidly, placing a retirement portfolio at risk of premature depletion.

Blended Approach Retirement Portfolio
DECREASE SPENDING DURING AN EXTENDED BEAR MARKET


Another policy is a blended approach, meaning it uses a percentage of the prior year's spending amount together with a percentage based upon the current portfolio value. When blended together; these two values determine the next year's spending amount. Having a percentage of the spending tied to the performance of the portfolio will increase or decrease the spending amount in tandem with the value of the retirement assets. A decrease in the spending amount during an extended bear market is a vital concept for improving the sustainability of a retirement portfolio.

Endowment Policy Retirement Portfolio
DECREASE SPENDING DURING AN EXTENDED BEAR MARKET GRADUALLY


While the endowment policy is designed to lower the spending amount during a bear market, it does so on a gradual basis, thereby allowing the retiree time to adjust spending and stay on plan. Like the university endowments that use a similar policy, it can provide a balance between funding current operations while also preserving assets to cover future operations.

To begin using an endowment policy, retirees and their advisors must decide on two factors: what spending rate is appropriate and what smoothing rule should be applied, described as follows.

• Spending Rate is the percentage of the portfolio value the retiree will use to determine their annual spending.

• Smoothing Rule determines how quickly to increase or reduce the retiree's annual spending amounts based upon the portfolio's investment performance. Selecting a 90/10 smoothing rule assumes that 90% of the spending amount will be based on the prior year's spending and the 10% will be based upon the portfolio's current valuation.

If you would like us to mail you the information KIT with a FREE CD discussing the ins and outs of managing your retirement income please contact us today.
Review it online here: www.Thornburg.com

Let us get you started!
Online at our website: www.LamonAndStern.com
Call us at 770-951-8411

 --------------------------------------------------------------------------------------------------

Disclosures:


When using the endowment policy, retirees and their advisors can expect that spending amounts may not keep pace with the cost of living, unless the performance of the underlying investment portfolio grows sufficiently to support it. This slow "tightening of the belt" during bear markets is one of the keys to a sustainable retirement portfolio.


Following this strategy does not assure or guarantee sustainability of a retirement portfolio or better performance nor do they protect against investment losses.


Investments carry risks, including possible loss of principal. Investments in equity securities are subject to additional risks, such as greater market fluctuations. Bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. The principal value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. Investments in stocks and bonds are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity.


The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.


Before investing, carefully consider the investment goals, risks, charges, and expenses. For a prospectus containing this and other information, contact your financial advisor. Read it carefully before investing.

ROAD OF RETIREMENT INCOME Series | PART 3 of 7

Alleviate reverse dollar
cost averaging with a
trusted retirement advisor.

SEQUENCE OF RETURNS &
REVERSE DOLLAR COST AVERAGING
PART 3 of 7 Series:
THE ROAD OF RETIREMENT
The Process of Managing Retirement Income

The effect on a retirement portfolio under the stress of systematic withdrawals can be quite dramatic.

Sequence of returns is simply the order in which returns are realized by a retiree. The consequences of a bad sequence of returns, especially early in retirement, can mean premature depletion of the portfolio.

Retirees need to avoid being in the position of having to sell during inopportune market environments. Being forced to sell at the wrong time can result in "reverse dollar cost averaging".

Reverse Dollar Cost Averaging
PLAN TO ALLEVIATE REVERSE DOLLAR COST AVERAGING

During the pre-retirement or accumulation stage, investors making systematic deposits into an investment portfolio will typically benefit from "dollar cost averaging". This benefit results from nothing more than taking advantage of periodic drops in the price of an investment being systematically purchased. During these periods of share price decline, the investor is getting more shares for the dollars being invested.

Once an investor retires and begins to receive systematic withdrawals from their retirement portfolio, these periodic declines in the price of these shares, now being sold to cover expenses, becomes detrimental. Retirees look to generate a certain amount of dollars to pay expenses so when the share prices of the investments in the portfolio decline, the retiree has to sell more shares to raise the dollars needed. This is "reverse" dollar cost averaging.

Best Practices for Retirement Income Planning
RETAIN CONTROL OVER YOUR RETIREMENT ASSETS

To help alleviate the effects of the sequence of returns and reverse dollar cost averaging, there are four very simple best practices that can be incorporated into your retirement income planning.

   1. Diversify Your Portfolio by staying invested in cash, fixed income and stocks.

   2. Use a Cash Flow Reserve Ladder when structuring the portfolio to provide allocations to cash and short-term, highly liquid investments, which is optimal. The retiree is not under duress to have to sell.

   3. Develop a Growing Income Stream using high and growing dividend paying stocks for the equity portion of the portfolio can provide a growing income stream that should reduce the dependency on capital appreciation to achieve the retirement plan.

   4. Use a Trusted Financial Advisor who can help thoughtfully develop and manage your retirement income plan. They can provide a line of defense during times of market turbulence.

While there is no way to adequately predict the sequence of returns you will experience during your retirement, you can control the timing of when you sell your assets to support expenses. Using the strategies outlined in this article can provide a framework that will help alleviate the negative effects of reverse dollar cost averaging and should be appropriate for the majority of retirees looking to retain control over their retirement assets.

If you would like us to mail you the information KIT with a FREE CD discussing the ins and outs of managing your retirement income please contact us today.
Review it online here: www.Thornburg.com

Let us get you started!
Online at our website: www.LamonAndStern.com
Call us at 770-951-8411

 --------------------------------------------------------------------------------------------------

Disclosures:

Following these strategies does not assure or guarantee sustainability of a retirement portfolio or better performance nor do they protect against investment losses.

Investments carry risks, including possible loss of principal. Bonds are subject to certain risks, including interest rate risk, credit risk, and inflation risk. The principal value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. Investments in equity securities are subject to additional risks, such as greater market fluctuations. Investments in stocks and bonds are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity.

The views expressed in this article are subject to change.

Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.