I have 28 years of helping people with their money, and the following is an overview of my plan for harvesting of retirement assets. This plan divides your savings and investment money into three parts. Basically, you need to determine how much money you will need annually from your savings and investments to supplement your Social Security and other income sources. Once you determine that annual figure, determine how much money is needed:
• 1-2 years out
• 3-5 years out
• 5+ years out.
Whatever you need to supplement your Social Security and other income sources during approximately your next two years of retirement, at any given time, should be kept in readily accessible cash reserves; such as savings accounts, Treasuries, or Money Market accounts. Cash reserves are liquid with no penalty to access.
The next three to five years of money you will need from your assets should be kept in fixed income assets. These include things like CDs, Treasury Inflation Protected Securities, Government or Corporate Bonds, and Credit Risk Investments. With fixed income assets, remember to stagger maturity dates to allow for your investment duration to equal the year of your potential need to withdraw and to diversify your holdings within this category. For example, don’t buy a 10-year bond that you anticipate needing to spend in the next 3-5 years.
Although a financial advisor can help you find investments for your 1-5 year money, you may not require an advisor to help with cash reserves and other fixed income assets for short-term use. You can save money by managing this money yourself, particularly the 1-2 year cash reserves,
If you are looking for growth in your assets, history says investments in equities/stock investments are one of your best bets*. So for the rest of your money, not needed for five years or more, I generally recommend a well-diversified portfolio of equity/stock market investments to try to achieve growth to help try to stretch your assets for today’s longer life spans, and to overcome the effects of inflation and taxation that decrease the value of your money over time. This is where you need the help of a professional, as this is your longer-term investment money with which you will take on significant risk and potential volatility to try to grow your money for your longer term harvest. Your goal is to harvest (withdraw) from a well-diversified portfolio of assets only when they are up, using the shorter term liquid assets as a buffer during times of market volatility when the time isn’t right to sell your equities. I generally recommend one year of “need from assets” money be allocated into each investment category. This allows you to “harvest” for any given year from any investment, depending on which portion of your portfolio is doing best at the time of need – so you can harvest where there is bounty.
Because of the potentially significantly large fluctuations of the stock markets, I believe it is prudent to only have your longer term dollars invested in equities, and that you need to have a “reserve tank” to buy yourself out of periods of market downturn.
Finally, to keep this plan rolling forward, once each year, “fill-up” your cash reserves from your investments and other assets to maintain accessible cash for living expenses. In the event of multiple down market years, you would draw that year’s harvest from your cash reserves or fixed income assets, which prevents you from having to sell when the market is down. Remember, with investments you always want to try to “buy low, sell high”.
Obviously this is a very simplified overview of my plan for asset harvesting. The best place to learn more is in one of my retirement planning classes at Gwinnett Technical College. Please call our office at 770.931.1414 or log on to www.rogersgreen.com for dates and additional information. Or call Gwinnett Technical College directly at 770.995.9697 to register for Successful Retirement Planning.
If you have no time to attend class, but wish to discuss your situation further, please call my office to schedule a complimentary consultation.
*Note: Past performance is not a guarantee of future success. Investments in securities do not offer a fixed rate of return. Principal, yield, and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested.
Roger S. Green is a Registered Representative with Cetera Advisors LLC, member FINRA & SIPC, with his office located at 3700 Crestwood Parkway, Duluth, GA 30096. Hear more “Your Green”, Saturdays at 3:00PM on Faithtalk 970 AM or live at www.faithtalk970.com. Green Financial, Gwinnett Technical College, and Cetera Advisors LLC are not affiliated. Visit www.rogersgreen.com for more information.
