Creating a Retirement Investment Portfolio During Market Turmoil

Retirement Income Planning, Calgary
Imagine with me for a moment. You are finally ready to let go of the job that has sustained you for many years and enter the wonderful world of your ideal retirement lifestyle and the Stock Market Crashes. It will probably be one of the most exhilarating and unnerving days of your life.
Why? Because you now will leave the security of a steady income and totally rely on earning an income from your investments and government pensions. The pensions will at least provide you with some level of comfort, but your portfolio - well that's where the uncertainty comes in.
How can you ease the uncertainty of drawing an income from your portfolio during a market correction like we are seeing right now?
Let us show you the importance of the "sequence of returns" and how to manage volatility during the income taking years. Keep in mind that the strategy for growing your money will not work when it comes to drawing an income from your money.
The diagram below compares 3 different portfolios with $100,000 invested over a 10 year period. Which portfolio do you think will perform the best? Notice that all 3 have an average annual rate of return of 7%.
You will notice from the next diagram that with an average 7% annual rate of return all 3 portfolios performed the same and grew to $196,715 over a 10 year time frame. What this illustrates is that, over time, volatility will not have a huge impact upon growing your money. You can weather the ups and downs of the markets.
The next diagram tells you a different story. Once these 3 individuals begin to take $7000 out annually, as an income, to fund their lifestyle, something unusual happens. The first portfolio earning 7% and paying out 7% doesn't change. It remains in tact with the whole $100,000 still there after 10 years.
The second portfolio actually grew to $112,528, even though $7000 a year was withdrawn in income. The reason for this is because the portfolio enjoyed higher returns in the beginning years (9.4%, 14%, 13%, 23%). 
The third portfolio actually lost money and after 10 years is down to $83,586. This deterioration occurred because of the early investment losses (-7%, -4%, -1). The portfolio never recovered, nor will it.
The point of the story is that steadier returns are required when you are withdrawing an income from your portfolio in retirement. This is the second leading cause of running out of money in retirement. The first cause is taking too much money from your portfolio. 
The traditional wisdom for a suggested withdrawal rate from a portfolio is 4% of the total value.
I guess the next logical question is: How do I create the right kind of portfolio with the right kind of investments? 
When it comes to creating a retirement income from a portfolio of investments the first priority is determining how much income you need to cover your basic living expenses, lifestyle expenses, and health care needs. 
The second priority is to decide how much of your money should be dedicated to creating guaranteed income to cover the basics.
The third priority will be constructing the right kind of portfolio to create income while at the same time protecting and growing your nest egg. Our bias in this portfolio construction would lean toward the proper asset allocation. The portfolios we use for this include up to 12 different asset classes. As you can see from the illustration below. 


In order to produce steadier returns, it is necessary to be well-diversified among several different asset classes (ways to make money). For the past 20 years, this portfolio management style has produced consistent returns in both up and down markets. 
These types of portfolios will not fully participate in up markets, meaning if the overall markets are up by 20% like 2019-2021, these portfolios may be up 12%. It also means that they do not fully participate in down markets. When the markets were down dramatically in 2015 this portfolio was still up by 7.9%.

It's important in retirement to have a trusted advisor that you can work with for many years to come. 55% of pre-retirees will change advisors when they transition to retirement because they realize they need specialized planning with a focus on income protection.

If you are in or close to retirement and would like to meet with us to put together a retirement income plan, book time in our calendar for a meeting. We'll help you determine:

  1. How long your money will last.

  2. How much you can spend each year and still have confidence that you won't run out of money.

  3. When should you take CPP and OAS? 

  4. Which of your assets you should spend first to create tax-efficient income.

  5. How much you should be saving now so that you can generate the income you'll want in retirement?

We can help you create a sustainable, predictable cash flow from your portfolio in the most tax-efficient manner to ensure you never have to worry about running out of money.

Want to retire in the next few years? Our plans start at $2000. Click here to learn more.


Willis J Langford BA, MA, CFP

Fee-Only Retirement Income Planner


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