Retirement Income and Distribution Strategies

Question 1

Taking Social Security at age 62 and at age 70 implications

Answer 1

• Taking it at 62 could reduce it by as much as 33%
• Taking it at 70 could INCREASE it by as much as 30%

Question 2

Building Reliable income sources

Answer 2

• Laddered TIPS
• Laddered CDs
• Portfolio of high-dividend stocks
  
  • With their tax-advanteged accounts, they can select mutual funds and ETFs that invest in high-divident generating stocks, portfolios of stocks that regularly increase dividends over time, and portoflios of preferred stocks
• Long-term bonds that provide steady coupon payments
• Some allocation into REITs (generally high-dividend paying)
• Some allocatioin in annuities

Question 3

Accessing home equity for retirement

Answer 3

• Could be good for people with LARGE amounts of equity in home and has a cash flow problem in retirement
• They could:
  
  • Downsize their home
  • Home equity line of credit (revolving credit)
  • Second mortgage or home equity loan
  • Reverse mortgages
    
    • Doesn’t require payments
    • Although, equity is limited and reduces estate values
    • Home Equity Conversion Mortgage loan (HECM) are structed so that individual receives fixed payments over specified period based on equity of homes

Question 4

Income-based strategy for retirees

Answer 4

• If they have sufficient retirement savings could use just the INCOME from these assets:
  
  • Laddered TIPS
  • Laddered CDs
  • High-dividend stock portfolios
  • Preferred stocks
  • Common stock with high-yield dividends
  • Annuities (Fixed/deferred)
  • REITs

Question 5

Income-based strategy for retirees - Advantages

Answer 5

• Principal IS NOT TOUCHED and can continue to enjoy capital gains treatment (because you’re not seeling the asset), just receving income from those assets
• Good for hiigh net worth people who have low risk of running out of money
• Fixed-income withdrawals is easy to understand

Question 6

Income-based strategy for retirees - Disadvantages

Answer 6

• Living off only income could have individuals reduce their standard of living
• In case of emergencies, if you tap into the principal amount, you could harm your income and could be insufficient in the future years

Question 7

Risk tolerance vs Risk Capacity

Answer 7

• Risk tolerance - how much an investor can tolerate when variances in portfolio happen
• Risk capacity - how much a portfolio can withstand with negative events