If those don’t drain your account, you will most likely deplete it entirely just by living too long.  

Adding guaranteed income products to a traditionally diversified portfolio may provide the potential to capture a portion of market gains, while potentially limiting losses when the market experiences a downturn. Using this model, explained below, can also help.  

Time Segment Model 

A more disciplined structure for creating retirement income. This approach is designed to spread your portfolio across multiple accounts, each designed to produce income over a certain period of time. How each account is invested depends on how soon the money is to be used. Typically, the initial segments are for immediate needs and may therefore be allocated conservatively in fixed rate or even guaranteed investment products such as certificates of deposit or immediate annuities that may not be subject to a fluctuation in principal. Segments designated for later use can be invested more aggressively. Since they won’t be touched for a while, they have time to overcome market corrections. Over time the aggressive segments will be shifted to more conservative products as retirement savings are used. 

Using this model to build your investment portfolio may allow for continued steady income instead of just playing the stock market game of chance. If you aren’t sure that your current plan uses this model, maybe it’s time for a second opinion. Schedule yours at www.mysecondopiniontoday.com for a no obligation assessment of your current portfolio.

All investing involves risk, including possible loss of principal.

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The First Step Cash Management system** can help ease some financial worries as it allows cash to flow into three accounts or “buckets.” Each of the three buckets holds a specific type of money, and each type of money has a specific use or purpose. This system aids in tracking your spending and knowing where your money is going.

1. The Static Account™ bucket holds money that has been spent or has agreed to be spent at some point in the past, such as mortgage, auto loans, credit card debt, insurance, and utilities.

2. The Control Account™ bucket contains money that will be spent within the next seven days. This account includes daily needs like groceries, pet care, clothing, etc.

3. The Dynamic Account™ bucket stores money that will be spent in the future on things such as charitable giving, debt reduction, vacation, and gifts.

For retirees who feel overwhelmed by the many decisions they face as they enter retirement, a bucket strategy similar to the envelope system that their parents may have used back in the day, may help them divide what they see as one large stress-inducing problem into smaller, more manageable pieces.

*Running Out of Money Worse Th an Death – by: Carole Fleck: AARP Bulletin, July 1, 2010
**First Step Cash Management is owned by Th e Planning Center Inc. and Distributed by Money Quotient, NP

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The goal is for you to feel free of financial worry so that you can spend your time focusing on what you enjoy. In my opinion, that’s so much better than the old planning model in which you are in the middle, and circling around you like the moons of Jupiter are all of your current advisors: your CPA, who calls you up every March to ask you where your receipts are; your lawyer, whom you haven’t seen in eight years since she handled your daughter’s auto accident; and your insurance agent, who calls too much, always at dinner time. Then don’t forget your investment advisor who hid under the desk in 2008 and wouldn’t answer the phone. If you have such a “team,” ask yourself when was the last time that they all got together and talked about your plan?

If you have a constellation of advisors, each will see just a piece of the jigsaw puzzle. None of them is likely to help you know how to fit those pieces together. That’s a job for a primary financial coordinator, your CFO, who will work to keep the big picture in mind. You should expect regular communication. Receive a free no obligation assessment of your retirement plan at www.mysecondopiniontoday.com. A good advisor will keep in touch so that you can make the adjustments to stay on course toward your goals. We can’t change the wind, but we certainly can trim the sails.

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The two sailing approaches are called “strategic,” and “tactical constrained.” The former calls for a fixed balance of stocks and bonds to weather any storm. The latter adjust those percentages depending on market conditions. The adjustments are tactical, but they are constrained within boundaries. They can only go so far.

The two rowing strategies are “tactical unconstrained” and “absolute return.” The former doesn’t have those constraints that I just mentioned. The latter is based on getting a return during any market cycle, using such tactics as short selling and buying alternative investments.

Many investors will use a combination of those strategies, weighted toward whether their aim is to accumulate assets or preserve and distribute them. The balance of strategies also will depend on the market outlook and their risk tolerance—is the investor aggressive or moderately conservative?

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You need a financial plan in place while you are alive and for the sake of your loved ones when you are gone. It eliminates guessing. It is indeed the fear of the unknown that can hamstring you in retirement. Whether it’s founded or unfounded, it comes down to uncertainty. Without a financial plan, you don’t know whether or not you could fend off a real threat, and you may imagine a threat that doesn’t exist and therefore spend years scrimping. You deserve to enjoy life.

Imagine if you will, a couple in their 70s, in the early stages of their financial planning, and the wife is upset. She wants to go on vacation every year, but her husband insists they don’t have the money. She wants a professional to weigh in.

It would make sense to prepare a cash flow analysis and income projection and talk to them about how much they thought such vacations would cost. The answer may be right there in black and white. Perhaps there is no reason why they shouldn’t be taking yearly vacations.

And that’s the real purpose of a financial plan. People feel frozen when they don’t know what the future looks like. A couple may feel they need to hoard their money and not enjoy it, or at least one of the spouses feels that way. Next thing you know, one of them is too sick to go anywhere and they haven’t done anything. Put a plan in place so that you can go out and enjoy the fruits of your labor.

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However, that’s not true diversification. If you have everything in stocks and bonds, you still have all of your assets exposed to some levels of risk. In my opinion, rules of thumb such as that will generally hurt you more than they will help you because they are an attempt to apply a general principle to highly individual needs and wants. Should everyone age 76 have the same portfolio? No, that’s quite the opposite of diverse, not mention no longer realistic as the market and interest rates shift.

To provide some background information, the bond market is not a world of safety. Here’s what people don’t realize: We have just gone through a 30-year bull run in the bond markets 1. In 1981 you could get CDs for 16 percent; now, the rates are 1 percent or less. These are the lowest interest rates people have seen in their lifetime. Why were the bond markets so attractive in the last 30 years? Because as interest rates go down, the price of the bonds appreciate. It was a great place to obtain some safety and catch a wave for three decades.

Today, with money market rates near zero, one could assume that rates cannot go down much further and that they likely will rise as some point in the future. As those rates rise, what will happen to bond values? They will fall. Rising rates equal falling bond value, just as falling rates equal rising bond value. This is no longer a conservative and lucrative approach to diversification.

So what is a diverse portfolio for today’s retirees? Professor Moshe Milevsky (The IFID Centre, York University Toronto), a researcher, author, and speaker on personal financial planning, talks about not just asset allocation, but product allocation for retirement. A truly diversified portfolio isn’t a mix of stocks and bonds, but rather it includes some genuinely conservative investments across several specific asset and insurance areas.

6 “PIMCO’s Gross Says Bull Run in Bonds over.” Reuters. Thomson Reuters, 10 May 2013.

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