Is your retirement income program ready for you?
by Steve Selengut Mr. Selengut is a private investor and a contributing editor to LIFE&Health Advisor. He is the author of the book ‘The Brainwashing of the American Investor: The book that Wall Street does not want you to read.’ He can be reached at firstname.lastname@example.org
All of us are approaching retirement, many of us are already there, and some of us (myself included) are thinking about the ultimate IRS slap-in-the-face… The Required Minimum Distribution.
It's time to make sure that your retirement income program is actually ready for you. One thing is certain: Every investment program becomes a retirement income program eventually. You need to bring your program to a place where you can comfortably say: “A stock market downturn will have no significant impact on my retirement income”
This applies to everyone; income development is always important, and Tax Free Income (outside the IRA or 401k) is The Very Best income of all. Only private "safe haven" type 401k plans are capable of focusing on developing your retirement income. All the others are designed for you to spend your security's market value!
Retirement readiness requires active consideration of your asset allocation, a finger on the pulse of your overall diversification, and most importantly, the fundamental quality of your holdings. Those of you who are relying on 401k assets to fund your retirement income requirements need to determine precisely what it is that you own.
Have you looked inside your income funds for the income-to-you total? Did you know that the most popular, cheapest, 2015 Target Date Fund: is 52% in the stock market, owns more than 6,000 individual equity positions, and generates less than 2% of actual retirement income?
If you are within five years of retirement, repositioning at the top of a stock market cycle ( like now) is essential; if you are in retirement, get your portfolio out of any employer plans and into your IRA… you just can't protect yourself in Mutual Funds or ETFs. If you are approaching 70, the RMD is "in your face"…
Here's how to handle it:
- Position the portfolio to produce slightly more income than you must take from the program
- Take the income monthly and DO NOT pay the income taxes in advance. (This is because lump sum withdrawals require uninvested cash reserves and/or untimely sell transactions.)
- Move the RMD disbursements into an individual or joint account and reinvest at least 30% (i.e., try not to spend all of it) in Tax Free Income CEFs
- If you hold equities (in addition to the RMD income producers you need), set your profit taking targets lower than usual… and maintain the Cost Based Asset Allocation.
If you do this properly, your heirs will be able to do the same… I would guess that many of you are not aware of the "safer than you've been led to believe" income opportunities that my clients have become used to over the past thirty-five years.
Some of you have been to my ongoing series of "live SRS portfolio review, Income Investing Webinars". If you've been unable to attend in person, this link will take you to a recording of the January 22nd presentation: just follow this link.