Where can I get Income????

Posted: January 11, 2012 in Uncategorized

One of the more interesting conversations I get to have with my clients is how we are going to generate income for their retirement. With so many solutions available this tends to be a loaded question. In my experience many clients have no idea how to live off of their money when  retirement comes calling. The income distribution phase of financial planning is the ugly step sister compared to the fun asset accumulation phase. No longer are we talking about generating alpha, beta coefficients, and performance. Rather we are talking about IRA distributions, RMD’S, and yield.

Many brokers turn to annuities for income, some will utilize mutual fund portfolios’, others will use laddered bonds, while others rely on dividend paying stocks. Needless to say there are a million ways to generate income in retirement . For me and my clients there is no magic bullet. Introducing an income plan that stays in line with the needs and risk tolerance of the client is paramount. I personally believe in using a diversified approach to investing as well as generating income.

While some variable annuities promise to pay income for life no questions asked I am quite skeptical. Most companies hedge their reserves against the 10 year treasury and you all know what the 10 year in currently yielding. I am just as guilty as any other broker/advisor using these products. At the time they seem like a great idea, especially in the market environment of the last 3 years.Guranteeing principal, income or both while participating in the market is great,but I have a sneaking suspicion that the glory days of these investment vehicles is behind us.

Others will use REIT’S and only REIT’S to generate said income. Many times older and undereducated investors will be sold these programs believing they are stable and safe. One firm in particular is guilty of misleading sales practices regarding these investments. Older investors are herded into a banquet hall and promised the moon: 8% income, no risk, stable principal, and liquidity only to find out that the entire story is fiction. I suppose Poppy is not who you thought he was. I am not here to say all REITS are bad, I use them in my practice for 5-10% of my high net worth clients portfolios. In no way however am I promising the moon, when used as a diversifier REITS (non traded) can smooth out volatility and provide a generous income. They should not be your only source of income however.

All in all the most important thing I can do is educate and inform the general public about whats out there. There are tons of investment programs available to the public and by and large most are on the up and up. However many in my industry like to abuse or misrepresent what they are proposing to clients. Generating a solid income stream for a client is not rocket science. Listen to your clients, understand their goals, risk tolerance and time horizon. Its amazing what you can accomplish when you actually listen. I was told early on in this business you want to be interested not interesting.

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