Monday, January 26, 2015

Creating Steady Sources of Income in Retirement

Over the past year, I realized one of the deficiencies of my retirement finances: insufficient steady income streams.   Our retirement income is primarily dependent on the gains of our investments. While investment gain strategy works well when investment values rise, it under performs during market corrections and bear markets, as I learned and experienced in 2008.

Here are the four investments elements I am working on to create steady sources on income:



  • Fixed income -  For us, these are mainly CDs.  Over the past year, we bought several 5-10 year CDs that pay 2-3% a year.  (Alas, gone are the days of earning 5% in a money market account.)  We purchased the CDs through a brokerage, and therefore, can sell them before maturity, if we need the funds.  I am also considering investing in closed end municipal bond funds, which pay about 5% yields.  I am targeting to get 25% of our retirement income through fixed income.

  • Dividend income -  I will be increasing the number of stocks that pay dividends in our investment portfolio.   First, we have invested in a fund that focuses on dividend income and growth.  We have used this fund from 2009 to 2011 and since 2012.  I have been happy with both the dividend yield (~3.5%) and the investment gains over that time.  In addition, I plan to add dividend paying stocks on my own, using the Dividend Aristocrats and Dividend Achievers lists as a starting point.   Finally, I plan to keep, instead of sell, the remaining stock I have of the company from which I retired since it has a 3% dividend.  I am targeting to generate 25% of our retirement income through dividends.

  • Rental Income - In 2013 I became a landlord when I inherited part ownership of a commercial rental property.  The good news was that the mortgage was paid off and the property is positive cash flow.   It is also handled by a property management company, which reduces direct involvement by the owners.  Although there is consistent income, the annual net rental income varies due to vacancies and economic conditions.  I would like the rental income to cover 25% of our retirement income.   However, once this property is sold, I don't know if we will purchase another property to replace it.

  • Annuity Income -   I've looked at purchasing a lifetime annuity through an insurance company, but haven't been able to rationalize the cost.  I am interested in an immediate annuity in about 20 years, but most agents aren't interested in selling me a policy in 20 years :-)  At this point, our most likely source of lifetime annuity income will be Social Security, for which we won't be eligible to receive for about a decade.  I expect that Social Security will cover about 25% of our retirement income. 

  • For now, we will consider gains in our investments as a bonus, but also target investment gains to cover 25% of our annual retirement income.  This will provide a cushion if the four income categories fall short of their 25% target.

    I'll be working on implementing this retirement income strategy over the next few years.

    For more on Strategies and Plans, check Mondays for a other segments.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2015 Achievement Catalyst, LLC

    Friday, January 02, 2015

    Returning from Sabbatical

    Happy New Year!

    After over a year on sabbatical from blogging, I am returning on an occasional basis, posting between one and four times a month.  I will try this posting frequency for a few months and decide whether to continue.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2015  Achievement Catalyst, LLC

    Tuesday, December 31, 2013

    Final Post Before Sabbatical

    This is my final post before taking an indefinite sabbatical

    After more than 7 years of posting on mostly a daily basis, it is time to take time off.   I feel better prepared for retirement finances since recovering from the 40% decline in the 08/09 bear market.   For the past year, we've consistently been able to meet our financial targets known as Wealth Builder Ratios.   We will continue to use the ratios as our metrics going forward.

    Here are some posts that I particularly enjoyed writing for this blog:

    Achieving early retirement:

    Achieving Financial Freedom - I've Retired In My Forties


    The Our Journey to Financial Freedom series:
    1. Our Childhood Preparation
    2. The Value Of Higher Education
    3. Making The Most Of My Job
    4. Lifestyle and Spending Choices
    5. Setting Goals, Developing Plans and Tracking Process
    6. Staying The Course
    7. How Luck Played A Role
    8. My Personal Finance Mind Tricks
    9. The Professionals We Used
    10. When Preparation Met Opportunity

    I wish everyone a great 2014 and good luck on their journey to financial freedom.

    Bye.

    This is not financial  or retirement advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC

    The Wealth Builder Carnival #157 - Final Edition

    Welcome to the one hundred fifty-seventh edition and final edition of The Wealth Builder Carnival. The purpose of this carnival is to collect articles from the blogosphere on building, preserving and keeping enough wealth for a comfortable retirement. For reference, I have tried to keep the carnival content tightly focused on wealth building and did not include submissions that were off topic. For reading convenience, the posts are listed with a brief summary or comment by the submitter and organized into seven categories: Earning, Insuring and Protecting, Investing, Living Frugally, Retiring, Saving and Taxes.

    And now on to the Carnival.


    Earning


    Bryan presents How To Make A Career Change posted at Glennalicious.org, saying, "The end and beginning of each new year brings about many changes. If you are planning a career change or possibly considering starting your own business, here is a guide with steps on how to manage your finances and prepare for success."


    Investing


    John Schmoll presents Betterment Review: A New Investing Option to Consider posted at Frugal Rules, saying, "Investing in the stock market is vital to building wealth and with the variety of options available of where to invest it can be confusing. Choosing a good brokerage that has good offering and low fees can be a great way to help grow your retirement portfolio and get your investing on the right foot."


    Retiring


    Justin @ Root of Good presents Running Out Of Money In Early Retirement posted at Root of Good, saying, "Depleting all your assets during early retirement is a common fear for those seeking financial independence. Here are five reasons why it's unlikely you'll run out of money and four tips to avoid depleting your investment portfolio in early retirement."


    That concludes this edition. Past posts can be found on our blog carnival index page.

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    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial, earning, insuring, investing, living, retiring, saving, tax, or wealth building advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC

    Monday, December 30, 2013

    Wealth Builder Ratios - Q4 2013

    Here is our Q4 2013 Wealth Builder Ratios update. This will be the last update before my sabbatical from this blog.   During the fourth quarter of 2013, the Dow, Nasdaq and S&P500 indices were up 8.5%, 10.2% and 9.5% respectively. My company stock was up 8.5%.  Our investment portfolio increased in value 7.6% due mostly to my company stock.

    For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

    Ratio and Target
    Q3 2013
    Q4 2013



    Comments
    Retirement Income to Salary
    Target=0.8
    2007= n/a
    2008= n/a
    2009= n/a
    2010= n/a
    2011= n/a
    2012=  n/a
    0.790.84This is the new metric that I'm using which is based on a 4% withdrawal rate of the liquid assets in our retirement and savings accounts.

    The initial target I'm using is a 0.8 ratio, which would be 80% of our pre-retirement pre-tax income.   We were very close in Q3 and passed the target in Q4, due to the advance of my company stock. 
    Investment
    Income to Salary
    Target=0.8
    2007=3.41
    2008= -5.47
    2009= -1.38
    2010=1.29
    2011=0.5
    2012= 2.02
    4.445.89I will use this metric through the end of 2013 and then replace it with the Retirement Income to Salary ratio.

    5.89 is the highest increase in our wealth ratio ever. The increase in Q4 was due to the increase of my company stock.

    I plan to sell some additional shares of company stock in my retirement plan, keeping only the low basis shares in my company retirement for a future NUA execution.  At this point, I have sold 85% of the stock options with a  2014 expiration date.  I will sell the balance in 2014.  
    Savings to Salary
    Target >20
    2007=23 2008=16.7 2009=15.3
    2010=16.6
    2011=17.1
    2012=19.1
    23.525.0I will use this metric through the end of 2013 and then replace it with the Retirement Income to Salary ratio.

    Most of the gain in Q4 was due to increase of my company stock.

    During Q4, I slightly increase the amount of funds invested in equities.    I plan to add more funds into stocks and ETFs during 2014, especially if there is a correction.
    Debt to Salary
    Target=0
    2007=1.51 2008=1.46 2009=0
    2010=0
    2011=0
    2012=0

    0

    0
    We said bye-bye to our mortgage on May 20, 2009. Eliminating a mortgage payment has reduced our expenses by 24%.

    My financial goals for 2013 were:

    1.  Maintain a Retirement Income to Salary ratio >  0.8.  (met target at 0.84)

    2.  Continue to maintain an Investment Income to Salary ratio > 0.8. (exceeded target with 5.89)

    3. Maintain a Savings to Salary ratio of 20. (exceeded target with 25)

    4. Maintain Debt to Salary Ratio at 0. (met target of 0)

    (For reference, Salary refers to gross salary just prior to early retirement in October, 2007.)

     #1,  #2 and #3 were directly correlated with how well our stock, bond, and CD investments returns. With the advance of my company stock and the high proportion of cash, our portfolio was up less than the indices.

    Although I am pleased with our portfolio results, I am not confident the gains are sustainable. Our short term expenses (next 3-5 years) are invested in CDs, bonds and money markets. I continue to be concerned about volatility of our investment portfolio, and there are equal downside and upside potential going forward due to EU issues and the US debt ceiling crisis.  So I continue to add funds to the stock market during dips, and sell off my company stock and stock options in a tax efficient manner.

    I continue to have the same financial goals for 2014. At this point, I am slightly optimistic about the economy and the stock market.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC

    Sunday, December 29, 2013

    Indefinite Sabbatical

    My last day of regular blogging will be December 31, 2014.   After that I will be taking a sabbatical of indefinite length.  My reasons for taking a sabbatical are simple.

     First, other activities are requiring more of my attention.  For example, we adopted another child in 2013, which was a pleasant surprise since we had applied in 2006.   I also have a number of half started home projects I want to complete. In addition, I've figured out that Social Security and Medicare will require preparation on my part even though my participation is over 6 years away.

    Second, I want to move to full retirement.  I've stopped working at various part time jobs and, while I have enjoyed blogging, it has become more like a part time job over the years.   So I decided earlier this year to retire from blogging also.

    So my plan is to post the final edition of The Wealth Builder Carnival on Tuesday, followed by a final parting post for My Wealth Builder.   After that, I may write an occasional post . . .  or not :-)

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial or blogging advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC

    Saturday, December 28, 2013

    What I've Learned

    As I prepare for winding down this blog, I've been thinking about what I've learned over the past 7 years from writing posts about our personal finances..   Here are some of my key learnings:
  • Successful wealth building depends on skill and luck.  Part of our success was due to good personal finance habits, e.g. saving and living below our means.   However, luck also played an important role.  I was fortunate to work my entire 27 year career for one company with outstanding retirement benefits and great compensation.  In addition, the stock market (and my company stock performance) played a large role in building our wealth. For example, if I had worked for Enron, or the stock market didn't recover, our financial situation would be much different.
  • There are many paths to building wealth.  However, I wrote mostly about the path with which I had experience: Getting a college degree to work in a higher paying profession and living way below our means.   I didn't have much experience in other paths, e.g. owning a business or real estate, so I didn't post much about those paths.  
  • Doing what I love for work doesn't pay much.  After retiring, I tried jobs that I "loved" to test drive potential second career options.   It turned out doing what I loved didn't pay enough for me to start a second career. I found there was no perfect retirement job for me.  So in early 2013, I stopped doing part time jobs.
  • It's time to move on and really retire. Doing this blog and the part time jobs was probably a subconscious effort on my part to keep working and delay fully retiring :-) 
  • So it's off to the next adventure  - full retirement.  I know now that is a lot more for me to learn.  However, I won't be blogging about it.  That would be too much work :-)

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC

    Tuesday, December 24, 2013

    The Wealth Builder Carnival #156

    Welcome to the one hundred fifty-sixth edition of The Wealth Builder Carnival. The purpose of this carnival is to collect articles from the blogosphere on building, preserving and keeping enough wealth for a comfortable retirement. For reference, I have tried to keep the carnival content tightly focused on wealth building and did not include submissions that were off topic. For reading convenience, the posts are listed with a brief summary or comment by the submitter and organized into seven categories: Earning, Insuring and Protecting, Investing, Living Frugally, Retiring, Saving and Taxes.

    And now on to the Carnival.


    Insuring and Protecting


    Matt Becker presents How to Know When You Need Life Insurance posted at Mom and Dad Money, saying, "Life insurance is one of those topics that nobody really likes to talk about because, well, who likes to talk about dying? It’s also one that gets a bad rap because of the poor behavior of a large number of salesmen who push it. The lack of conversation is unfortunate, as life insurance is one of the foundational pieces of a secure financial lifestyle."

    Bryan presents Variable Universal Life Insurance Pros and Cons posted at MyLifeInsurance101, saying, "Learn about the pros and cons of variable universal life insurance? By comparing the flexible premiums, investment options, and tax advantages, you can determine if universal life insurance is the best type of coverage for your family."


    Investing


    Bryan Chau presents Investment Trends For 2014 - Secure Your Future posted at Success Pen Pal, saying, "investing, trends, future, opportunities, 2014, goals, lifestyle, profits."

    Mark Hanna presents Dividend Champions List Review – December 2013 posted at Debt, Dividends, & Diversions, saying, "In this series we look at the December edition of the U.S. Dividend Champions sheet, compress down the data into a few simple metrics, and attempt to find the best valued dividend stocks based on a combination of yield, P/E, and dividend growth rate."

    Bryan presents Should I Pay Off My Mortgage Early? posted at Gajizmo, saying, "With mortgage interest rates likely to begin increasing in 2014 and beyond, does it make sense to pay off your mortgage if you have a variable interest rate? What are the pros and cons of paying it off early? Check out our guide to analyze the factors and whether or not you should!"


    Living Frugally


    Theresa Torres presents Christmas Spending Without Guilt posted at CreditDonkey.com Tips, saying, "Don't want to make the same mistake as last year when it comes to Christmas spending? Then follow these tips so you won't enter the new year with lots of debt and an after-holiday guilt."

    John Schmoll presents 6 Fun and Frugal Christmas Traditions to Start This Year posted at Frugal Rules, saying, "Christmas is just around the corner which means the opportunity to spend time with family and friends. There are many traditions you can start in order to celebrate the Holiday and still be frugal at the same time."

    Debt BLAG presents The lessons I learned paying off all $35,000 of my credit card debt in 2013 posted at Debt BLAG, saying, "I paid off all $35,000 of my credit card debt in 2013; in this post, I outline the most important steps I took and the lessons I learned along the way."


    Taxes


    Justin @ Root of Good presents 11 Tips to Finish the Year Strong posted at Root of Good, saying, "Don't make a huge financial mistake by ignoring these 11 things you have to do before 2013 comes to a close."

    kurt@mymoneycounselor.com presents These Tax Breaks Ending! posted at Money Counselor, saying, "You've got until December 31st to take advantage one last time of these five tax breaks. They end when 2014 begins."


    That concludes this edition. Submit your blog article to the next edition of The Wealth Builder Carnival using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial, earning, insuring, investing, living, retiring, saving, tax, or wealth building advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC

    Sunday, December 22, 2013

    Hedging Against an Upside

    Since 2011, I've been expecting a 10+% correction in the stock market to create a buying opportunity.  The correction hasn't happened and I've missed out on one of the 10 best years of stock market returns since 1947.  Oh well :-(

    Although I continue to have a cautiously negative outlook on the stock market, I recognize that the it may continue advancing for a long period before the next 10% correction.  So I plan to use up to 10% of our investment funds to hedge against the upside that may continue for months.  That way we can participate somewhat in the market advance, while waiting for the inevitable correction to happen.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC

    Wednesday, December 18, 2013

    Creating a Margin of Safety

    For our investments, I'm still expecting a downward correction, which hasn't materialized for almost 2 years. So we are in a tentative hold position, selling a few stocks with gains, buying a few depressed stocks but keeping the amount of funds in equities about the same.

    To me, 2013 still feels a lot like 2007, when the market peaked.  I still feel the pain of the 08/09 stock market decline.  So for now, we're holding much more cash  in our investment and retirement accounts than in 2007-2009, just in case the market drops.

    For more on The Practice of Personal Finance, check back every Wednesday  for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2013 Achievement Catalyst, LLC