When it comes to retirement income, you want it reliable and with inflation adjustments. Unfortunately, many retirees only know how to take income from the interest and dividends their portfolio produces. They do not understand how to safely invade the principal. And depending on their risk tolerance, they may be living on a 1% - 4% income stream. Anything higher is not prudent. Even 3%-4% may be unsustainable if you’re in a market based portfolio.
On the low end at or even less than 1% are those who cannot handle any risk and have their portfolios invested in bank CDs or short term treasuries. If that’s you, please keep reading. You may like the example below.
On the other hand, if you are in a market-based portfolio, when the market declines, so does the value of that portfolio. Even though your portfolio may be filled with high quality stocks, in a panic, most stocks will fall. You don’t have to look very far to see that. Just consider what’s happened since January of this year, or 2008, or 2001, etc. It’s the old saying: “All boats rise or fall depending on the level of the water.”
And with increasing volatility in the market over the last 20 years, it’s no wonder many are looking for reliable retirement income. This is a graph of the S&P500© from January 1996 through last Friday, February 19, 2016. If you have 20 – 30 years left in retirement, you may want to add more certainty to your income.
Trying to maintain lifetime income with so much volatility is a real struggle. Just ask anyone you know who was retired during the 2008 recession. If they were taking 5% from their portfolio before the recession, they had to adjust to much less if they wanted to be sure to not run out of money. Check out this couple with a half a million dollar portfolio in 2008. Here’s what they lived through. At the beginning of 2009 they thought they were doomed. Plus, they needed the $25,000 withdrawal in addition to their other income streams to make life work.
Needless to say, they didn’t sleep well from 2008 through 2013. They were too old to live like that! They needed more certainty at age 70. So they learned about Conservative Structured Income Payout Systems. (There are also moderate versions of this, but we’ll stick to conservative today)
What is a Conservative Structured Income Payout System (CSIPS)
CSIPS is a strategy combining various types of annuities to provide guaranteed retirement income and tax‐deferred accumulation without subjecting your assets to market risk. The SIPS strategy may be especially attractive to those who wish to implement a conservative retirement income approach for a portion or all of their retirement savings.
The objective of the CSIPS strategy is to provide immediate income for a given period of time, maintain tax‐deferred growth, generate retirement income that cannot be outlived and still provide an emergency fund that can be accessed if needed. A SIPS approach can be an incredibly effective means of helping you reach various financial goals and meet various personal needs such as:
- Grow and preserve assets for retirement on a tax‐efficient basis among various financial vehicles
- Create guaranteed income to help maintain your way of life throughout retirement
- Reduce the likelihood of making financial decisions based on emotion rather than logic
- Protect your hard‐earned principal from market risk
HOW DOES THE CSIPS WORK?
Based upon your specific financial needs and objectives, Everett Wealth Solutions will develop a SIPS plan to meet your needs. The annuities selected for your SIPS plan may generate income immediately or may create income in later years by accumulating for a set period of time. One of the most conservative CSIPS structures, for example, involves allocating premium into four "portions" that will systematically help you achieve your financial goals. Let's take a look at how this might work in today’s low interest rate environment with the remaining $442,354 that was left:
If you are interested in seeing how this may work for you, let’s talk.