Help Me Retire Podcast - Episode 15
- Mike Brown
- Feb 27
- 9 min read
How to invest in retirement
Show notes:
This is the Help Me Retire Podcast… with your host… Mike Brown… Senior Wealth Advisor with Raymond James Financial Services… and head of Brown Family Wealth Advisors…
Mike is the best-selling author of Your Way to True Wealth: How to Make It Happen, Make It Last, and Make It Matter…
He and his team have been helping clients pursue their dreams of financial independence for the past 30 years… and in the Help Me Retire Podcast… he’ll share his best ideas with you…
And now… here’s Mike…
If you’re thinking of retiring any time soon... you’ve probably got a lot of questions... and two really big ones stand out...
The biggest question I hear from people in that situation... “Do I have enough money to retire?”
And the second big question is... “Assuming I can afford to stop working... what do I do with all the money I’ve saved?”
How should I invest that money... to help me pay for what I want to do for the rest of my life... while making sure I don’t risk running out of money along the way...
We’re going to tackle that big question... plus I’ll explain the strategy we use with our clients to build an investment portfolio to stand the test of time... in today’s episode of the Help Me Retire Podcast...
So, what you’re listening to right now... is the seven-step process we use to help people make a successful transition into retirement...
We covered Step one in Episode 12... creating your retirement vision...
Step two... Episode 13... all about designing a spending plan for retirement...
Episode 14 covered Step three of the process... finding income in retirement...
This is Episode 15... Step four... on how to invest in retirement...
In Episode 16... we cover how to protect yourself... your wealth... your health... and your privacy... Step five...
Episode 17... Step six... setting up a tax strategy in retirement...
And in Episode 18... we wrap everything up with Step seven... which is about how to create your legacy...
So... let’s say you’re about to retire...
You’ve come up with a spending plan that’s consistent with what you’re used to spending...
You’ve got a good handle on how much income you’ll be receiving from Social Security... pension... and other sources...
And now you’re wondering how to make up with difference out of what you’ve saved and invested up to this point...
You want to enjoy this money... as much as you can... but you never want to run out... you’ve got to make your nest egg last... at least as long as you do... or maybe you and your spouse...
Up to this point... it’s been all about making your money grow... you’ve had time and compounding working for you...
From here on, however... it’s not about making money grow... it’s about making money last...
Well... what if I told you that it’s possible...
To have all the income you need to live on each year in retirement...
And to also give yourself a raise every year to stay ahead of inflation...
All without depleting your principal...
Some people will tell you that can’t be done...
They’ll tell you to turn your life’s savings over to an insurance company that promises to pay you income for life... income, by the way... that’s designed not to increase over time with inflation... so that every check you receive will pay for a little bit less than the one you got the month before...
Or they’ll tell you to use the “four-percent rule”... and systematically liquidate your life’s savings over time... hoping you die before your money runs out...
I don’t know about you... but neither one of those strategies makes a lot of sense to me...
No... I think there’s a better way...
I know it’s possible to get steady income from your investments... increase that income over time... and wind up with more money... than you started with...
I know it’s possible... because I see many of our clients doing exactly that right now... and we’re helping them do it...
And if that’s something you want to do when you retire... you need to understand three very important things...
The first is that whatever income you need to make to support your retirement lifestyle... you need that income to increase over the rest of your life... at least as fast as your cost of living...
It’s not about growth... it’s not about income... it’s about growth of income...
The second thing to wrap your head around... is investing each dollar of your nest egg... not based on what you think the market’s going to do... or where interest rates are heading... or who’s in the White House...
No... you should think of investing each dollar you’ve saved... based on when you plan to spend that dollar in the future...
And the third thing you want to understand is how important it is... how absolutely essential it is... to stick with your investment plan through good times and bad...
If you throw your roadmap away every time you feel a little bit off course... then you’re going to stay off course... you’ll never get where you want to go...
We don’t want to do that...
So, let’s get into that first issue... making sure your retirement income increases just as fast... if not faster... than your cost of living... faster than inflation...
How do you do that?
Well... that’s how Social Security works...
Once you start drawing Social Security retirement benefits... you can expect to get a raise each year... based on the consumer price index...
That’s a perfect example of retirement income that rises over time... in line with the cost of living...
And that’s what you want from your investments...
But a lot of people don’t think about that when they retire...
Their first goal is protecting their principal... keeping their money quote/un-quote... safe...
So, they load up on fixed-income investments... like bonds and certificates of deposit...
And what they often wind up with... just as the name implies... a fixed rate of income that doesn’t go up over time... it’s fixed...
So, if you’re heading into a 20- to 30-year retirement... where your spending will need to go up nearly every year...
And your strategy involves paying your bills... which keep rising... with investment income that doesn’t... I think you know where this ends up...
You’ll eventually need to start spending your principal...
More and more principal every year... which then produces less and less income as time goes by...
Before too long... your nest egg is in a death spiral that you can’t recover from... and trust me... you don’t want to see how that ends...
Fixed-income investments are fine for your short-term spending needs... in fact, we’re going to talk about that in just a second...
But you need to be thinking in terms of investments that not only pay you an income... but that also have the capacity... of paying your more an more income over time... and I can think of only one...
Equities... specifically... shares of successful businesses that pay dividends that have consistently increased over time faster than the cost of living...
We created a process for researching companies like this...
It’s called... The Dividend Method... and if you want to learn more about it...
Listen to Episode 9 of this podcast...
I’ve written blog posts on dividend investing...
There’s a whole section on the Help Me Retire website on the Dividend Method... under the True Wealth tab...
And speaking of which... there’s a whole chapter on investing for rising income... in my book... Your Way to True Wealth... also on the website...
Let’s leave it at this... if your portfolio in retirement isn’t generating income that’s rising faster than your cost of living... you’re going to be faced repeatedly with deciding which investments to sell... and you won’t always have the luxury of deciding the best time to sell them...
So... if rising income is one of the keys to successful investing in retirement... how do you design an investment portfolio to give you that rising income?
It gets back to something I said a few minutes ago... about investing every dollar based on when you plan to spend it...
We call that... goals-based investing... and it simply means matching your investments... to your spending goals...
It’s the approach we take when we build portfolios for our clients... and it’s how we manage those portfolios for the rest of our clients’ lives...
Think of it like this...
Let’s say you have goal... of withdrawing five thousand dollars from your investments every month... to supplement any other retirement income you’re receiving...
Now, historically... equities have outperformed most other types of investments... notably bonds and cash...
But with a month-to-month time horizon... stocks are probably a mistake... because stock prices are very unpredictable over short time periods...
Do you really want to put yourself in a position of having to sell stocks in the middle of a bear market?
Come to think of it... even bonds can be unpredictable month-to-month... so we don’t recommend them for this goal, either...
No... if it’s money you’re going to withdraw in the next 12 months... you’re probably better off keeping that money in something very liquid... like a money market fund... or even cash in the bank...
So, for our example... five thousand dollars a month... times 12... that’s 60-thousand dollars of your nest egg... in cash or cash equivalents...
That’s our goal for the next 12 months of your retirement... year one...
What about different goals... year two and beyond?
Well, now we might have some more attractive options... holding high-quality bonds for more than a year is a prudent approach... especially if those bonds have a target maturity date... like the beginning of Year 2...
Actually... that’s the strategy we use for Year 2... and Years 3... 4... and 5...
With really conservative clients... we might even want to fund up to 10 years of retirement spending... with fixed-income investments...
It’s called building a bond ladder...
And each time we reach one of those target maturities... those bonds mature... and that’s what our clients use for spending over the next 12 months...
So, we’ve got Year 1 expenses in cash or cash equivalents...
Years 2 through 5... maybe even Years 2 through 10... in bonds or other fixed-income investments...
You might be wondering how we replenish those bonds as they come due...
That’s where rising-dividend equities come into play...
We take some of that rising stream of dividend income... and buy bonds for the top of our bond ladder...
Those dollars probably won’t get withdrawn for at least five or ten years... so they can keep compounding...
In fact... if you do this right... you might never need to sell a single share of stock to pay your bills...
You’ll be more likely to earn those attractive returns that stocks have delivered over long periods of time... because you’ll be able to leave that portion of your portfolio basically alone for long periods of time...
A lot of people think stocks are risky... and over short time periods, they are...
But the longer you hold equities as an asset class... the less risky they become... and the fewer surprises you’re likely to get...
The goal we have for our clients... is to give them the option, if possible... to live off the income their investments generate... pay themselves a raise every year in line with inflation... and keep their principal intact over the rest of their lives...
That gives you some nice options... leaving money to your family... a charity perhaps... or maybe that’s how you pay for long-term care if you ever need it...
You might say... that’s all well and good... but I don’t want to leave my kids a big inheritance... I want to spend as much of my nest egg as possible...
That’s also a worthy goal... and if you choose that approach, you can probably afford to spend even more of your money every year once you retire...
We’ve developed a different strategy for clients who want to spend down their savings... and there are some simple guidelines for doing that... so that you don’t spend too much, too soon...
We’ll cover that strategy in another episode when we have more time...
I just want you to head into retirement... with options... live off your income... spend down your principal... neither approach is right or wrong...
It’s your money... it’s your choice...
My goal for you... is to make either choice... possible...
I hope you’re listening to these seven steps toward a successful retirement in order...
And the nice part about these podcasts is that you can go back and listen to any episode you want... any time you want...
Today’s episode is the fourth of those seven steps...
Next time... we’ve got a lot to dig into... step five... is all about protecting yourself...
Protecting your wealth...
Protecting your health...
And protecting your privacy...
All big issues for retirees... and you’ll want to tune in for that one...
Thank you for being with me today... and if you want to talk about the Dividend Method some more... or how the goals-based investing strategy might work with your portfolio... feel free to get in touch...
Just go back to the home page of our Help Me Retire website... and click... Get in Touch...
We’ll see you next time...
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Brown Family Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a recommendation. There is no guarantee that these statements or opinions will prove to be correct. Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. Past performance is not indicative of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
