Victor R. from Branson, Missouri asks: I’m curious on what your opinions are when it comes to drawing income from a retirement portfolio. Do you raise cash for a few years’ worth of expenses and invest the rest? Or do you raise cash as you go? Is there some formula for how to correctly approach drawing income and getting growth?

Mitch’s Response: Thanks for writing, Victor. Your questions are among the most common for retirees but also among the most complex. And you even left out one additional key question: how to use your invested assets to generate cash flow for retirement. I’ll actually start there and then get to your questions.

I probably do not need to tell you that we are living in a ‘low yield’ world right now. The traditional vehicles for low-risk cash flow, like CDs and Treasuries, are barely keeping pace with inflation. In short, that’s not enough yield. Investors are turning to stocks for yield but that can be a risky move, especially if you over-allocate to stocks and do not properly diversify. At Zacks Investment Management, we carefully select amongst dividend-paying stocks in our Dividend Strategy, and are also looking towards municipal bonds and high-grade corporates for yield. As of June 2017, our Dividend Strategy has a yield of 3.14%, which is higher than the current yield on the 10-year and 30-year U.S. Treasury. I cannot get into more specifics here, but if you want to reach out to us at 1-800-701-9830 to learn more about our strategies for generating cash in your retirement portfolio, we can talk with you more about our approach.

As for your question about raising a few years’ worth of cash, I think it really depends on your risk tolerance and need for long-term growth. Some folks can afford to have a few years’ worth of living expenses in cash, but in my experience most people need most of their savings invested in some way. In other words, too much cash on the sidelines could mean too high of an opportunity cost in lost growth, which some retirees may need to keep up with their living expenses over their life expectancies. I do generally like the idea of having six months to one years’ worth of living expenses in cash, though, but again it depends on your situation.

Having a properly diversified portfolio with some income-generating assets in it, to me, is generally where many retirees want to be. It essentially means three things:

  1. You are generating some cash in your retirement portfolio
  2. You are positioned in a risk controlled way with a long-term growth objective
  3. You have the ability to trim positions in your portfolio to raise cash for living expenses along the way.

All of these functions require the help of an experienced manager, in my view.

Everyone’s situation is different, but a general rule I do advocate is trying not to withdraw any more than 4% of your portfolio’s value in a given year, and also doing what you can to avoid withdrawals during extended market declines, i.e., bear markets. How you ultimately structure your portfolio for retirement income, however, depends on your personal financial situation and your goals. To know what that would look like, we would need to run an analysis on your situation. We’re happy to do so free of charge – simply call one of our Wealth Management Advisors at 1-800-701-9830.

Still, planning for retirement requires you to consider many factors such as when you plan to retire, how much you need to retire comfortably, your risk tolerance and much more. So, to help you navigate through this process, I recommend using our guide, “Retirement Made Easy.” This step-by-step guide outlines how to plan for retirement and contains tips related to withdrawals, spending and more. It also gives you a sneak peek into some of our top investment strategies. To get your free copy, click on the link below:


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