March 2019 Newsletter
|How Investing for Income is a ‘Permission Slip’ to Enjoy Retirement|
|There’s a question that sometimes comes up regarding my income-based approach to retirement planning that I’d like to address in a couple of different ways. The question is basically this: what if I don’t need more income? That’s simplifying it a bit, but there are instances in which I’ll help a couple assess their income needs, and it appears they’ll be able to meet those needs without changing their portfolio to focus more on protection and income.
I stress “appears” because obviously there are no guarantees when it comes to investing, and circumstances can change dramatically—especially in today’s unprecedented age of economic uncertainty. That, in fact, is the first point I make when addressing the original question: investing for income isn’t just about protection; it’s about overprotection. It’s about having an extra layer of security against the kinds of major market drops that have devastated investors twice so far this century, and against the risk of cannibalizing your portfolio when it comes time to take your required minimum distributions or pay for a major medical event.
That extra layer of security exists with the investing for income model because it shifts the focus of your total investment returns from growth (which comes in the form of capital appreciation) to income (which comes in the form of interest and dividends). While capital appreciation depends on market growth (which sometimes turns to shrinkage), the income portion of your total return is, with the right strategies, achievable at the same competitive rates regardless of market conditions.
In other words, overprotection is possible without sacrificing return. Investing for income is simply an alternative way to get a competitive return with less risk. Thus, my first response when faced with the question, “What if I don’t need more income?” is to ask a question of my own: “If you can achieve that same level of return with less risk, doesn’t it make sense to do so now that you’re retired or near retirement?”
Some people see the practicality and common sense in that idea right away, and quickly take steps to lower their risk. Others may see the sense, but they don’t feel emotionally driven to act. Change of any kind is daunting and a little scary, and it’s rarely motivated by logic alone. Emotion is what really drives the decision-making process. So, with that in mind, here’s a little story I sometimes share with people who feel they “don’t need more income” that helps motivate them emotionally to make a change.
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