The Challenges of Managing Retirement Savings

Aug 04 2015

You have retirement savings. It’s enough to last a while but you’re not sure about it lasting your life time. How do you manage it to provide current income and not run out too soon? This is a big challenge for money managers. If you are working with a financial adviser, thinking about working with an adviser or you’re a do-it-yourselfer, this article is for you as you prepare to navigate the rough waters ahead. If I were speaking as your adviser, here are some of the issues we would discuss.

Your Strategy. Your portfolio requires a balance between the proper mix of savings and investments to create income and growth. Your money will require fairly regular oversight and management. It will probably require the use of multiple savings and investment vehicles. The ‘savings’ aspect will generally include products that protect principal and provide some return usually in the form of interest payments. The ‘investment’ aspect will involve fluctuations in the principal amount as we try to capture some growth to increase the portfolio’s longevity. There may even be an insurance aspect to the portfolio mix.

Just knowing what I describe above, you have to ask yourself if you are up to the task or will need help. You need to know what savings, investments and insurance choices are available, why they are used, how they are used, and when to use them.

You will need to monitor the results in your portfolio and the economic environment (public and private sectors) to know when to make necessary changes. Since no one has a crystal ball to glimpse into the future, historical and current knowledge of markets will have to do.

We’ve covered the easy part. Now let’s get into the meat of the matter. What is the proper portfolio balance? How do you determine your balance? How do you achieve the balance?

Portfolio Balance. The perfect portfolio balance would allow you comfortable current income while simultaneously growing the portfolio so you never run out of money. It’s so much easier said than done. For many it comes down to living on less than you wish or running out of money. If you invested well over your working life, your job is easier. As your adviser, I would rather be safe (manage to last a lifetime) than sorry (you go broke).

I can almost guarantee that my definition of ‘safe’ and yours are different. That means we have to come to an agreement on a definition or we’ll be at each other’s throats at some point in our working relationship and you’ll fire me. ‘Safe’ for you probably involves some form of principal protection. ‘Safe’ for me is maximizing the longevity of the portfolio since going broke isn’t an option in my mind. Principal protection as the primary strategy is a dog that won’t hunt in my plans.

Determining Your Balance. Let me start by providing a measuring stick. The following spectrum will help define our portfolio balance situation.

100%  —————————————————100%
Principal Protection                                                 Principal Loss

For illustration, 100% principal protection is a guaranteed savings vehicle like a FDIC insured savings account or CD. 100% principal loss is gambling or over spending.

The potential rub between us is that ‘safe’ for most people usually implies a form of principal protection and as a result people seeking safety prefer the far left side of the line above. When people aren’t sure whether they have enough money to last a retirement, they want to protect the money thinking that will help it last–our minds fear the potential loss more than we crave the potential gains. But the truth about the line above is that both the far left and the far right of the line result in the same outcome; you go broke during your lifetime.

On the left side of the line, you’ll use your principal to live on and burn through it much faster than it can grow to offset your usage rate. This is the classic scenario of outliving your savings. On the right side, you’ll throw your principal away before you die. So essentially an FDIC insured account is the same as gambling when you consider the ultimate long-term outcomes.

For me, safety is somewhere between the dots and that’s where the challenge is between us. I have to coax you to go out onto the line between the dots and that can be a scary place for some retirees. Then I have to determine how far out on the line I need to go with you. I can’t be too safe and I can’t be too aggressive (risky). Three huge factors in this consideration are: how much money do you have, how long I have to make it last, and how much income you need now—not to say there aren’t plenty of other factors.

Achieving the Balance. This is where the recipe gets complicated and can’t be comprehensively explained in this article. However, I want to get you pointed in the right directions in case you want do more research. The balance is a mix of the right savings, investments and insurance products that allow you to withdraw a reasonable amount of income each year and at the same time grow the portfolio to last a lifetime. Here’s where you have to know what the products are, why you use them, how you use them, and when to use them. Having knowledge of the economy and markets is a big plus.

What. The choice of savings or investment products span the cosmos—savings accounts, CDs, bonds, stocks, mutual funds, options, convertible stocks or bonds, closed-end funds, Exchange Traded Funds (ETF), Unit Investment Trusts (UIT), private money managers, annuities, life insurance products, long-term care insurance… This only skims the tops of the trees since each of the items listed have many (hundreds or thousands) branches below the tree top.
Why. Some of the choices above provide for a stable principal, some are for income, some are for growth, and some provide a combination of outcomes. Whatever the expected results are for each of these choices, you can be certain that how each choice delivers its result will involve a pro and a con in relationship with the rest of your portfolio. You should know the pro and con for each choice to offset and balance the results with the other holdings in your portfolio.

When you shop for an adviser, it should be a part of your shopping list to ensure the adviser understands not just what the choices are but also why and how to use them. Know how many choices your adviser offers. Some advisers only offer a few choices. If an adviser offers only a few choices, they will make their choices work for you even if there are other choices in the cosmos that may work better for you.

Also consider all of your various accounts and how what you do in one account balances with what you do in other accounts. If you are working with an adviser, and the adviser is only working with one of your accounts, the adviser may duplicate another account or counteract another account since all accounts might not be visible to the adviser.

How. Once you understand why you use one choice over another (“I need income.”), how you use the choices are dependent on your specific needs and goals. In this case, our desired outcome is generating income, so we may purchase an immediate annuity to generate a steady flow of guaranteed income for life. Or we could purchase dividend paying stocks, or a closed-end fund, or a bond, or an income generating mutual fund or sell covered options…on and on.

If we purchase an immediate annuity, this allows us to consider alternate portfolio choices with your other accounts in the light of having established a guaranteed lifetime income stream with the annuity. Meaning, you may be able to move a little further out on the line with your other accounts to assume some potential for greater growth. Or you may be able to reach for greater income with more aggressive income investment vehicles like junk bonds or closed-end funds.

If you purchase a long-term bond mutual fund for income instead of an immediate annuity, things change for other portfolio choices. Realizing that interest rates are at all-time lows right now, the outlook for bond prices is down in the future. Here’s where the econ and market insights help. Expecting the value of your long-term bond fund to go down in the future (and your account value), how will we offset this issue with other portfolio choices? On the flip side, while your bond fund goes down in value, we can expect the income payments to increase. How does this change other choices in the portfolio? Maybe we don’t have to rely on the other choices to provide as much income so we can focus on making up the loss in value of the bond fund with other growth choices. Usually when bond prices decrease it leads to growth vehicles increasing in value. Maybe we don’t need to bulk up on growth options as much and can bulk up your income producers so you have more spendable income. Choices choices.

When. When to use one choice over another is tough because we can’t predict the future—not even the pros know the future. We can only read articles from respected people in the field, keep tabs on current economic events (not fads), and understand some history about economies and markets. However, don’t focus on current trends as the base line for your decisions. Trends are just that; fleeting events. Tomorrow they will be something else.

That’s why you have to follow the media with a healthy dose of suspicion. The media don’t mention anything until the investment has done something to create a newsflash worthy story, and by that time, it’s too late for investors. Besides all the sales people come out during the periods of euphoria in an investment to take advantage of your need for greed. Have you noticed how firms hustle gold to satisfy greed? Sales people also like periods of crisis because they can play on your fear. Have you noticed how firms hustle gold to alleviate your fear? One investment idea like gold can be spun to push either your greed or fear button. There is always an answer to greed or fear and sales people will find it when something is in the news.

View a bigger picture of society and the world. What are the big economic conditions? Housing in a slump or peeking? Interest rates up or down? Unemployment up or down? Construction on the rise? Consumers in a buying mood or a savings mood? Then remember that these events are temporary. Will the housing slump last forever? Is a down market something to fear or a temporary condition that will come back at some point and represents an opportunity to get on the ground floor of something good? How much time do you have to wait in your portfolio? How can you situate other portfolio choices to offset or balance the choices that will take time to rebound?

Can you prevent the need to deal with all these issues? Sure. If you are a ways from retirement, save and invest to have assets beyond your future needs. If you are close to retirement or retired, you could establish a retired living standard well below your means. You can plan to have no debts and very few other payments going into retirement. You could also choose to live in a lower-cost area. Or if you are retired, consider working at some level to subsidize your income thereby minimizing the need to pull from your assets.

Working in retirement accomplishes several good things. One is that it provides more options for how you manage your retirement assets. You can reduce the withdrawal amount from your assets which allows you to re-allocate your portfolio to capture more growth. Besides the money issue, working keeps you busy, works your mind and provides you a purpose in life. Finally, chances are the spouse could use a break from having you around all the time; no matter how charming you are.

We’ve just scratched the surface of money management and portfolio considerations. In some ways it would be great if the task of money management was a simple recipe that could be easily followed by all with success. That would solve a ton of problems. But in another way, the fact every person’s needs and goals are different and we have an assortment of choices to build a custom plan suited for each person is a good thing. Cookie cutter approaches only work for the people whose financial situations fall within the design of the cookie cutter.

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Kiplinger Magazine’s Social Security Strategies

Jul 29 2015

For those of you closing in on your eligibility for Social Security benefits, I found this article very helpful for determining your application strategy.

Best Strategies to Boost Your Social Security Benefits

I hope you find it helpful also.

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11 Lessons That Distinguish Successful Investors

Jul 27 2015

I don’t think the media do us any favors in the investment arena. More often than not, what I read, watch or hear does us more harm than good.

It’s not just what’s said. It’s the subliminal misguided perceptions about investing planted in our minds when faced with the following situations.

  • The constant reporting of how the investment markets did at the end of every workday. The DOW is up; the DOW is down and how it implies a winner or a loser.
  • Viewing the business news channels that follow the markets throughout the day and report on specific companies’ stock values.
  • Viewing the shows with stock pickers telling you to buy or dump various stocks based on their predictions.
  • The ratings of top mutual funds, stocks, bonds, etc, etc., in magazines and newspapers.
  • All the articles touting “…you must own these investments…” to be wealthy or retire comfortably.
  • The reports connecting negative national and world events to the markets and our investments.
  • Do this one month and do this the next month. And all the conflicting advice.

Too many of us are left with the impression that being a successful investor requires:

  • Daily or regular involvement.
  • Constant change.
  • Playing the stock market by timing the markets and your investment selections.
  • Moving your investments around among the funds in your 401k/TSP/IRAs.
  • Picking funds based on those with the best reported returns.
  • Specialized education or training.
  • A get-rich-quick scheme.
  • Listening to Uncle Joe for investment advice.
  • Too much effort.

Some believe the deck is stacked against us so why try.

We know average investors aren’t successful because data collected from investment accounts indicate individuals tend to have average annual returns well below the free-flowing markets.

According to the data collection and analysis firm DALBAR from a 2014 report, look how the average investor did against the free-flowing S&P 500 stock index.


What does this mean in dollars? Starting with $10,000, over the 30 year period, the S&P 500 index would have grown to $235,190 while the average investor compiled $29,740.

At this rate, people won’t have enough wealth to retire and more people will rely on the government for retirement security at a time when the government is broke. Congress is already talking about whether the government should take over our retirement investments since we can’t be trusted to do the right thing for ourselves.

How did the average investor fall so far behind? Partly because we are never taught how to be successful investors and, if we try to learn, look at the information we get from the media—“Buy These Funds NOW!” And in the financial service arena, you can’t tell the sales people from the honest advisers who work for your benefit.

So where do we go from here? First realize that successful investing is boring and that’s why we don’t get realistic, quality information from media. If the media explained the real story, it wouldn’t catch our attention, it wouldn’t sell media and there wouldn’t be anything else to write about.

We shouldn’t look for excitement or expect to read about success in 140 characters. Being a successful investor requires a little time to understand a few key concepts but none of the concepts are cosmic. Anyone can be successful with a little knowledge and a lot of discipline. If you are doing it right, your days should be calm and your nights restful. Remember, it’s boring.

So here are the lessons successful investors live by.

1) Learn to appreciate saving and investing more than spending. Spending is a short-term high. Assets from savings and investments are a deep and lasting satisfaction.

2) Realize wealth is about what you’re worth not what you earn. Wealth provides freedom. Otherwise you’ll be a slave to a paycheck your whole life.

“Man! If I made $150,000 a year, I’d be rich!” Wrong. There are plenty of people who make lots of money but have low-net-worth. Ask any low-net-worth professional athlete what happened when the paychecks stopped. There are high-net-worth people who earn average incomes. 80% of millionaires in the U.S. are average citizens who budgeted and invested well over their careers (“The Millionaire Next Door” by Thomas J. Stanley).

3) Know the difference between an asset and a liability. Assets increase in value over time and you own them. Liabilities decrease in value and don’t last. To build wealth, increase your assets and decrease your liabilities.

4) Learn the difference between good credit and bad credit. Good credit, like a mortgage or an education loan, can help you build assets. Bad credit, like consumer credit, makes buying disposable or short-lived products more expensive. You end up with nothing to show for your money. However, all debt can be bad if not maintained at reasonable levels for your income. The ideal is to have minimal debt to no debt.

5) You don’t have to take high risks or have a get-rich-quick scheme. In fact, stay away from these. Don’t listen to any marketing or sales pitches. These only make the sellers rich. Most times, if a person approaches me about playing with penny stocks or stock options or the lottery or gambling or sweepstakes or multi-level-marketing programs, the person is usually the last person on the earth who should be messing with these programs. It seems there is a correlation between not having any assets and the need to find a get-rich-quick scheme. Sales people know this and take advantage of this investor psychology. So…

6) Slow and steady wins the race. It’s a marathon; not a sprint. It’s like building a home. Start with a solid foundation; emergency savings, a good budget, spending less than you make. Build solidly planned investments in real asset building funds within your 401k/TSP/IRAs. When you’ve built your home (so to speak) and can afford to throw money away, then you can play with the stuff in point 5 above. I have no idea why you would want to though.

7) Get rid of emotional investing. If emotion drives your investment strategy, you lose every time. Emotional investments are based on pushing your greed or fear button. Gold is an investment that is routinely sold by appealing to your greed or fear. Listen carefully to ads and sales pitches to determine which button they are pushing on you.

8) Carve out a portion of your paycheck off the top to invest in your 401k/TSP/IRA every pay period. Live off the remainder of your pay. Credit isn’t a source of living income. If you wait to invest after you’ve paid bills and lived, you’ll never have investments/assets. “A part of all you earn is yours to keep.” (from The Richest Man in Babylon)

9) Wealth is about ownership. Why are wealthy people wealthy? They have lots of ownership in companies, properties, or their own businesses–assets not liabilities. The stock funds in your 401k/TSP/IRAs and other investment accounts represent ownership in companies world-wide. It’s the number of shares (ownership) in your account that determines your wealth. The account value will rise over time as a by-product of your ownership level. Focus on the collection of shares. The person who retires with the most shares wins. Search “averaging down” on this site to learn more about building ownership in your accounts.

10) As your income rises, so should your contributions to your investments. Not just the raw number increases but the percentage of your income going into assets should increase over time. Besides your money investments, invest in your career-self to increase your career value and marketability. Your lifetime income is part of your worth. Make more income to increase your net-worth; not to have more worthless toys. The new car smell wears off however increased wealth provides you options like earlier retirement or the ability to work because you want to and not because you have to.

11) Learn how to build a portfolio allocation to meet long-range objectives and to get out of self-defeating activities like market-timing and churning your individual investments. This Financial Frontlines site is full of lessons on building appropriate portfolio allocations (search “portfolio allocation”). The investment pros can’t regularly beat the free-flowing markets with all their staff, research and trading strategies. What makes us think we can? NOTE: we don’t need to beat the markets. We don’t have to beat the markets to do well. See the table above. Just understand portfolio allocations.

I know people who followed these lessons early in their careers and are now 50-year-old millionaires. Ordinary, average wage earning people. Be patient. The key to success is learning to not listen to news, media, sales people and friends/family. Building wealth doesn’t “trend.” It’s not a fad, new technique or a hot tip. Wealth is the result of proven timeless concepts and strategies implemented over your career.

If you want to read something that can help, read “The Richest Man in Babylon” by George S. Clason. This old book has timeless lessons that will serve you well.

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Explaining the Strickland Decision; VA Retro-Compensation and Amended Tax Returns

Jul 24 2015

I’ve written about the Strickland Decision here before. If you missed that article, you can read it here . But, what I haven’t talked about is how the IRS statute of limitations rules affect your ability to claim refunds on the taxes that you paid that shouldn’t have been paid under Strickland. That’s the objective for today. Let’s start with a review though…

The Strickland Decision

The Strickland Decision and Internal Revenue Ruling 78-161 give a retired service member the ability/right to adjust military retirement income reported on Form 1099-R. Generally speaking, significant tax benefits will only apply to those who are rated less than 50% disabled or those who receive Combat Related Special Compensation (CRSC). For those rated 50% or more disabled and receiving Concurrent Retirement and Disability Payments (CRDP) the tax benefit is minimal or non-existent due to the phase in of CRDP over the last 7 years.

This results from the reality that it will take a long time to fully develop a claim for Veteran’s Disability and during that time you accrue retro-active benefits. For those rated less than 50% disabled the benefits, in essence, change some of your taxable Retired Pay into tax-free Veterans’ Benefits. Unfortunately DFAS won’t retroactively update/correct your 1099-R and you have to do it yourself.

So…bottom line is if you are less than 50% disabled you can reduce your taxable income in the year of award and if your claim spanned more than one tax year you can file an amended return to claim a larger refund or reduce the amount you paid in.

IRS Statute of Limitations

At the 50,000 foot level, you can amend a tax return for a refund or credit for up to 3 years after the date you file the return. More specifically, the taxpayer must file an amended return within the later of:

  • Three years (including extensions) after the date the taxpayer filed the original return (if the return is filed early, use the due date); or
  • Two years after the date the taxpayer paid the tax

These rules apply to all taxpayers. But, Congress realized that it is likely that a Disabled Veteran could be in “negotiations” with the VA and go beyond the 3 year limit, so there is a special rule for amended returns filed by Disabled Veterans.

Section 6511(d)(8)

Section 6511(d)(8) of the IRS Code, Special rules when uniformed services retired pay is reduced as a result of award of disability compensation, specifically states the following:

(A) Period of limitation on filing claim

If the claim for credit or refund relates to an overpayment of tax imposed by subtitle A on account of

    (i) the reduction of uniformed services retired pay computed under section 1406 or 1407 of title 10 United States Code, or

   (ii) the waiver of such pay under section 5304 of title 38 of such Code

as a result of an award of compensation under title 38 of such Code pursuant to a determination by the Secretary of Veterans Affairs, the 3-year period of limitation prescribed in subsection (a) shall be extended, for purposes of permitting a credit or refund based upon the amount of such reduction of waiver, until the end of the 1-year period beginning on the date of such determination.

(B) Subparagraph (A) shall not apply with respect to any taxable year which began more than 5 years before the date of such determination.

OK…sorry for quoting the law, but I wanted to get it down on paper for you. What does it mean? There are two parts. First is the amount of time that you have to file the amended return. Second, is how far back you can go. So…

Once you receive the letter from the VA, you have one year to file the amended returns. Now…the law doesn’t say it specifically but I don’t think Congress intended to shorten the amount of time you have to file your “recent” returns (i.e. under the normal 3-year statute of limitation). With that said, I can’t guarantee that and the prudent retiree might want to consider filing all returns within one-year of the date of the letter.

Since I seriously doubt you would get a letter from the VA dated 1 Jan and since most of us file based on a calendar year, 99% of us will be able to file amended returns for the 4 years prior to the year the letter is dated.

Here is an example from the US Court of Federal Claims (Jonathan L Haas, Plaintiff, v The United States, Defendant).

  • VA rating decision on plaintiff (Haas) was issued on 1 Dec 09
  • Plaintiff’s statute of limitations for filing his refund claims was extended for one year from that date, or until 1 Dec 10
  • The five-year maximum limits the extended statute of limitation to the five tax years preceding the date of the determination.
  • Five years before the date of determination is 1 Dec 04
  • Because the 2004 tax year began on 1 Jan 04, the 2005 tax year is the earliest year for which plaintiff may receive the benefit of the extended stature of limitations.
  • Plaintiff’s refund claims for 2001-2004 are not subject to that extension (Haas retired in 2001)

To summarize, you’ve got one year to file (from the date of the letter) and at least the top-level you’ll only be able to file amended returns for 4 tax years prior to year of the date of determination.

The bottom line on all of this is that things are not always as simple as they seem. The more I work with, study and research the Tax Code the more I realize there is a whole lot of gray and very little black and white when it comes to taxes.

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Beware The Coming Stock Market Correction—Whatever…

Jul 10 2015

It’s easy to find financial journalists and analysts predicting a stock market correction (AKA a significant drop) sometime in the future. At the same time, other journalists and analysts are saying there are no indicators of a correction. What are we to believe?

As I post this on 10 July, we might already be at the beginning of the correction as the stock market is down about 4% since 19 May…we’ll see. (Never mind, as of 17 July, we’re back up to normal. Oops never mind again, as of 30 July the trend is still going down. What difference does it make?)

The ones predicting a correction tend to point to the fact the stock market has been on a rip since March 2009, the historic average timeline states we are due, and their data indicates the stock market is overvalued–too expensive.

The ones predicting no stock correction state the stock market is not overvalued according to their data and the sluggish economic data mitigates the stock market’s continued rise.

I’m not predicting anything. Nor did I make predictions for my past clients. Instead I’ll provide another spin for your consideration.

Rather than get wrapped up in market predictions, I generally prefer a planning process that manages to the risk while working towards your long range objectives; whatever the risk may be in meeting your objectives. Not short-term risks. We can’t know what will happen in the short-term but long-term that’s another matter. If we assume your portfolio risk is due to the stock market (now or in the future), that’s what we manage to.

Ask yourself, if the stock market takes a 50% hit tomorrow, how will that impact you? Will you care? Many will think, “Of course I’ll care!” However, this should depend on where you are in life.

If you are working, making regular contributions to your 401k/TSP/IRA and still years from full retirement, a down stock market is actually a good thing for you. Only in a down market can you increase your future wealth by purchasing greater amounts of ownership. There are several articles on this site that explain the details of this concept. Please read them if you do not understand the concept of a down market increasing your wealth. A good place to start is a 3-part article “Practicing What I Preach” at

Now on the other hand, if a stock market decline causes you trouble, you need to re-evaluate your financial plans/strategies and portfolios now to account for a decline before it occurs. Hope you’re not too late. By “…causes you trouble…” I mean a stock market decline will cause you immediate financial pain as you will sacrifice a current retirement income source or you risk running out of assets before the end of your or your survivor’s life.

Proper financial planning based on your objectives should mean a stock market decline is never a concern; you shouldn’t have to be concerned in the first place. Your financial plan should have already accounted for that prospect. If your financial plan requires constant oversight and adjustments to your portfolios based on current conditions and predictions…well good luck with that. You’ll have a lot of sleepless nights.

Let’s look at some ideas for meeting your objectives while managing to the risk.

Please consult a practicing financial professional for assistance. MOAA does not practice financial planning from our staff. We provide general education and counseling not personal financial recommendations or advice.

Separate blocks. Have separate portfolios based on segmenting your future into three blocks of time.

The first block is an income source for the immediate future, 3 years out. This portfolio is cash and readily available for living expenses. It doesn’t matter what the stock or bond markets do because this money isn’t going anywhere other than your pocket as you deplete the account.

The second block of time is 4 to 6 years out. This block has enough assets to re-supply your first block income someday. This allows more time for money to grow by seeking appropriate higher-return instruments. Maybe you buy intermediate-maturity bonds, CDs, deferred fixed annuities, balanced mutual funds, inflation-adjusted instruments, floating-rate funds. Sophisticated investors may sell options, or purchase preferred stocks or convertible bonds. Point is the appropriate instruments here are minimally affected by market variations.

The third block is money meant for the longer term, 7 years out and more. This block will probably consist of most of your assets. A portion of it will become the second block as the second block is shifted to the first block. This is money that can withstand a near term stock market drop because it has time to recover. This money can be adjusted more easily without sacrificing future income because you have the time to adjust. Investments here should provide a greater potential for long-term growth. This means primarily stocks but the aggressiveness/volatility of the portfolio can be managed to achieve the appropriate growth pattern you desire.

Diversified portfolio. Manage your portfolio with a variety of investments that react to various market conditions in their own ways. This way when the stock market declines, other investments don’t react to the stock market in the same ways—they counteract the stock market so to speak. A diversified portfolio won’t catch all the stock market’s highs and it won’t catch all the stock market’s lows. You plan to drive a smoother path down the middle of stock market highs and lows.

Buy a pension. Use some assets to purchase an immediate annuity. This is like buying a pension. Drop a lump sum into an immediate annuity and receive life-time guaranteed income for you and a survivor if you wish.

Bond ladders or other bond strategies. If you have enough assets, you may not need to be in the stock market at all. Buying individual bonds and holding them until maturity eliminates stock market and interest rate increase concerns. By varying the maturity lengths and types of bonds, you may be able to generate enough income to live on without tapping your principal.

An income portfolio. An income portfolio will be affected by stock market volatility but you don’t care. With this strategy, your focus is on the interest, dividends and capital gains an investment pays on a monthly, quarterly, semi-annual or annual basis. The share price (and your portfolio value) of the investment will rise and fall with the markets but the payments are what matter. You live off the income generated by the portfolio; not your principal. So as long as you are not selling ownership shares, their value doesn’t matter. Income investors are into dividend paying stocks, higher-interest rate bonds, preferred stocks, closed-end funds, real estate investment trusts (REITs), mortgage-backed securities, selling covered options, partnership arrangements, etc.

Income properties. If you are a property owner, you know that there are two ways to view your ownership. You either plan to sell one day and market values matter to you or you focus on their income potential and market values don’t matter as much. You probably read “Rich Dad, Poor Dad.” If you don’t own properties, but like the idea as long as you don’t have to own the properties, check out real estate investment trusts (REITs) as a possible investment option.

Insurance options. There are insurance and annuity policies with income riders that could meet some of the objectives of this article. I’m generally for keeping insurance and investments separate but check them out with your adviser to complete your education. Knowledge is power and knowing all your options makes you a better consumer and investor.

Hope these ideas provide you some worthy options for your consideration. Remember, consult a financial professional to discuss your personal situation and develop your portfolios.

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