David Scranton on Retiring “small” as a Baby Boomer with Larry Winget and Hyrum Smith May 27, 2018
Guests: Larry Winget and Hyrum Smith
The Income Generation With David J. Scranton
If you’re a regular viewer of the show or if you’ve read any of my books you know that I advocate protection as the number one priority for investors within fifteen years of retirement. And protection starts by making a paradigm shift from focusing on a portfolio of growth instead to focusing on a portfolio of retirement income which is what everything we’ve discussed here today. Has that income as a focus, in fact, in the end, it may be true that in order to achieve your simple retirement goals, you might just not need as much. Relatively speaking that is, but determining what you will need in terms of income is still essential if you really want a shot at achieving your goals. Once you realize that you’re on the right path for determining the best allocation to meet your income needs without running out of money, I know from experience that the whole concept of income first growth-second sounds counterintuitive to a lot of people. And that’s partly because we’ve been taught that in order to increase our retirement income we need to keep growing our portfolio and maximizing our returns. Naturally, that’s what Wall Street wants you to believe, why? Because they’re more likely to continue chasing capital gains in the risky stock market, in that case, helping you thinking gee. The more my mutual fund grows the greater my income, but the reality is that total return is really a sum of two things growth plus income. The income portion comes in the form of interest and dividends while growth is measured in terms of capital appreciation, buying something at this price and hoping that it grows to that price. Yet based on the misconception I just mentioned many people believe that in order to increase returns you must increase growth. And at the best way to do that is by staying invested in the stock market, even in turbulent times like this, in other words, these people have the idea that in order to increase your retirement income you must increase your risk. And that’s simply wrong, why? Because as I discussed many times on the show if your growth turns to shrinkage as a result of a major stock market plunge your return also shrinks and so does your income. So how then does focusing on income first change all this? Well, when you’re focused on income, you’re typically investing in things designed to satisfy your income needs through interest and dividend. And to better protect your principle from market volatility in risk in shrinkage. So while increasing your portfolio growth might require increasing your risk, in my experience increasing you’re retirement income starts with actually reducing your investment risk. And as one more misconception about shifting your focus to income that I frequently run into which is this. The idea that focusing on income before growth means you have to sacrifice growth, it doesn’t, it simply means adopting a different approach to growth more accurately it means working with an advisor who specializes in income to create an actual growth strategy. As opposed to simply choosing investment options because a lot of outdated textbooks say they offer the most growth potential, which is why some advisors and many do it yourselfers approach it that way. They basically cross their fingers and toes hoping to get growth but to put it simply with a strategic income-based approach. You have the potential to grow your portfolio the old fashioned way, organically, by reinvesting the income you don’t need in other income-based strategies. The result can be reasonable portfolio growth with far less risk and reliable interest and dividends generated, yes, in the range of four percent. Not two point eight even in today’s low-interest-rate environment, this approach can work especially well for couples and individuals whose retirement plans are simple why? Because they often find that their income needs do decrease once they downsize and move to more affordable communities, but because it is a specialized strategy more often than not it’s also one that requires working with an advisor who specializes in these income-based strategies.
**Disclaimer: Sound Income Strategies, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not an indication of future results. Be sure to first consult with a qualified financial advisor or tax professional about your specific financial situation before implementing any strategy discussed herein.