Using the Right Tools to Build a Retirement Portfolio

Wednesday, September 9, 2015 | Leave a comment

Using the Right Tools

I have a Craftsman tool set at home that’s served me well over the years. If I have a Phillips head screw that’s loose I reach into my tool box for a Phillips head screw driver. Now, that doesn’t make the hammer a bad tool; it’s just not the best tool for this job. If on the other hand I have a nail that needs to be driven, the hammer is a perfectly appropriate tool. If I want the job done right, I’d better be using the right tools.

If you’re building a retirement portfolio that needs to last 25 to 30 years, you’d better be using the right tools also!

John and Sarah

John and Sarah called into our radio show recently and came to our office for a second opinion and a financial plan to prepare for their retirement. They are both 55 years old and wanted to retire in 12 years at the age of 67. They had mutual funds being managed for them at a major brokerage firm by a third-party money manager.

John, who is a successful physician, told me that their portfolio was worth 1.5 million dollars. Their problem he said was it was worth 1.5 million dollars five years ago. After riding a roller coaster in the markets it was still basically the same value. He said, “We’re five years older, five years closer to retirement, and we haven’t made any progress.”

Their goal was to hopefully have a six-figure income when they retired, but they were worried that with everything going on in the economy, the markets, and the world it would be difficult to reach their goal.

Using the Best Tools to Do the Job

We showed them how they could divide their portfolio into two different parts with $500,000 being used in a low cost, managed index fund portfolio (a growth tool) and one million dollars being allocated to a retirement income annuity (an income tool). A retirement income annuity (RIA), which is owned by them and can eventually go to their kids, has a rider that will provide income for John and Sara when they retire. In fact, John and Sarah’s million dollar RIA will provide a minimum income for them of over $126,000 when they are ready to retire in 12 years, guaranteed by a multi-billion dollar insurance company.

This minimum guarantee along with the couples projected Social Security payments will add up to over $170,000 of income at the age of 67. And, they have a half million dollars in an their actively managed index fund portfolio that, given enough time (without being reduced by income withdrawals), should provide them with very good inflation protection.

With their retirement game plan in place, John and Sarah will be free to save more towards their future while sleeping well at night. They know that they’ll have the income necessary to protect their lifestyle, as well as potential growth to keep up with inflation, over a long and stress-free retirement.

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