Wealth vs. Income: The Crucial Retirement Question Carmichael Hill

You may have built up a robust and healthy balance sheet as you approach retirement, but not all assets are the same when it comes to planning for retirement.

For example, perhaps you’ve paid off your home. But your residence isn’t going to generate any income to help with the bills during your retirement. It’s what’s called an “unproductive asset”. It adds to your bottom line and increases your wealth, but it’s illiquid and provides zero income. Retirement is about utilizing your assets to help you cover the costs of your lifestyle and live sustainably. Simply building up a strong net worth is a very different goal. What you own is just as important as how much you own.

Enter good, proactive financial planning. It is crucial to understand the difference between productive and unproductive assets in retirement and those that generate wealth vs. those that represent wealth. Passive income streams, such as dividends and interest payments, are critical tools to help sustain you in retirement beyond the equity “trapped” in your home. These income streams reduce the amount of principal you must take from your savings when retired.

Dividend paying stocks, rental properties, bonds, and stocks with high expected returns are all options that may result in additional income during your golden years. The last of that list, stocks with high potential returns, is part of a what is known as a “total return” strategy. If you have $800,000 saved and need to take $4,000/month for retirement, then you need to earn at least 6% to avoid dipping into principal. If dividends and interest aren’t enough to reach that 6%, then you’ll need to own stocks that appreciate over time to make up the difference. This is total return – it doesn’t matter whether the gains come from portfolio income or price appreciation so long as you can get that 6% needed. This approach may help you reach your retirement goals by broadening the sources of your returns.

It’s also important to be strategic about the decisions you make when changing your portfolio to be income friendly. Investments that you’ve made and held over time may have embedded capital gains, which are taxable when realized (i.e. when you sell it in order to reposition to an income generating asset). Designing a well-built retirement plan should consider the effects of taxes on your income streams as well as the consequences of shifting them in the first place!

There is a lot that goes into a retirement plan. You spend most of your life saving for retirement, but the strategies change when you get closer and closer to drawing those savings down. Rather than thinking about how to save as much as possible, you must shift to a plan for how to make your money work for you. It’s not just about owning things – it’s about covering your costs and being prepared for expenses throughout your retirement.

So much of this is easier said than done. To identify what may work well for you, reach out to us today for a complimentary retirement assessment. Know where you stand and get a blueprint to move forward confidently to financial independence!

REGULATORY DISCLOSURE

Carmichael Hill & Associates, Inc. is a U.S. Securities and Exchange Commission Registered Investment Advisory firm. Registration does not imply that the SEC has endorsed or approved the qualifications of Carmichael Hill or its respective representatives to provide any advisory services. Advisor does not render or offer to render personalized investment advice or financial planning advice through this medium. Advice can only be given after:

  1. Delivery of a disclosure statement by advisor to client.
  2. Execution of our Investment Advisory Agreement between the client and the advisor.
  3. Initial payment of the planning fee or investment advisory fee by the client to the advisor.
  4. Advisor will not solicit or accept business in any state in which she or he is not properly registered or otherwise qualified to conduct business by virtue of a state “de minimis” exemption.
DISCLAIMERS

The information in this web site is based on data gathered from what the Advisor believes are reliable sources. It is not guaranteed as to accuracy, and does not purport to be complete and is not intended as the primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The identification of specific funds and model portfolios is being made on the assumption that the investor would participate in that investment or portfolio on a long-term basis and only after consulting with their investment advisor to determine their needs and tolerance for risk. With respect to any such identification, there can be no assurance that the fund or model portfolio will in fact perform in the manner suggested.

The results do not represent actual trading due to the timing of the clients’ trades and their trading costs. They may also not reflect the impact that material economic and market factors might have had on the advisor’s decision making if the advisor were managing the clients’ money. Investment and portfolio results may be different than the results the advisor’s discretionary clients achieve due to the timing of trades and the market conditions.

All references that might be made to an investment or portfolio’s performance are based on historical data and one should not assume that this performance will continue in the future.

LINKS DISCLAIMER

At certain places on this Carmichael Hill & Associates, Inc. Internet site, live ‘‘links’ to other Internet addresses can be accessed. Such external Internet addresses contain information created, published, maintained, or otherwise posted by institutions or organizations independent of Carmichael Hill & Associates, Inc. CHA does not certify, endorse or control these external Internet addresses and does not guarantee or assume responsibility for the accuracy completeness, efficacy, timeliness, or correct sequencing of information located at such addresses. Use of any information obtained from such addresses is voluntary.