Interest Income Is Only Part Of Retirement Planning
It’s no secret that one of the keys to enjoying retirement is having enough income to spend doing what you love. In a low-interest-rate environment, it becomes increasingly difficult to get the retirement income you may need.
Back in the ’50s and ’60s, retirees got their income from clipping bond coupons. That worked out famously well because inflation was mild and your purchasing power stayed relatively stable.
Retirement income planning changed in the ’70s. Stock dividends became the preferred way to combat the loss of purchasing power due to inflation.
Finally, in the ’80s and ’90s, retirees found they were dying and passing on large amounts of assets because their stock holdings did so well. Figuring out how much a retiree could spend became a complex matter.
To make matters worse, there is an inverse relationship between interest rates and your bond holdings. Low-interest rates also present a principal risk to your bond holdings, because as rates rise your bond values plummet. Who wants to buy your “low-rate” bonds when they can get a better-paying bond after all?
Low-interest rates present unique challenges to today’s retirees. We’re well aware of the challenges, and even better prepared to help you navigate a low-interest rate economic environment.
Total Return Retirement Income
Retirement income planning should be based on a total return strategy. Interest income, dividends, and capital gains are all pieces of the puzzle, but none of them is more important than the other. They all serve their own purpose and have their own planning and tax implications.
We monitor and manage your cash holdings, dividends, interest, and capital gains as part of the Retirement Navigator Program. We squeeze every last dime from your financial assets to make sure your retirement income streams are diversified, consistent, and maximized.
Shorter Duration Means Less Interest Rate Risk
As interest rates rise, your bond values drop. The longer (maturity) your bonds are, the more they drop.
There comes a point on the yield curve where longer bonds just aren’t worth the principal risk. We’re keenly aware of this point, and we generally prefer shorter duration bond investments. This keeps your principal risk low on the assets (bonds) you need to provide stability to your investment plan.
Alternative Retirement Income Investments
In addition to focusing on total return rather than high-income investments, we implement some unique investment strategies to increase your yield. Specifically speaking, structured notes (when used properly) can provide higher yields far less risk than you may expect.
Structured notes are highly complex investment vehicles. They can also provide greater stability to your retirement investment and income planning. It’s worth a discussion to see if the benefits structured notes can bring are right for your unique retirement situation.
If Low Interest Rates Shouldn’t Worry You
The truth is your retirement plan is far more important than what the markets or interest rates are doing. If you’re worried about low-interest rates we can help by building you a brilliant retirement income plan hedged for inflationary pressures.
If you want a retirement plan designed to weather all economic cycles and environments, we should talk!