No Financial Bias
By William Jed Mayfield
Retirement Income Specialist
Mayfield Financial & Estate Protection Services, Inc.
The Best Practices Used to Create Sustainable Streams of Retirement Income
Legit or counterfeit? Rather than ponder the future direction of the markets, which is typically a fruitless exercise anyway, let’s get straight to the point. For the fixed-income guarantee investor, wishing to maintain control of their principal with some upside potential, but most importantly no downside risk, we have the best planning available today. Helping my clients plan a successful retirement isn’t only a matter of understanding the obvious steps along the way– it is helping them see what they don’t see. These are commonly known as “retirement blind spots.” Blind spots can make a big difference in mapping out your happy retirement future.
And as I always say, number one on the list is adding guaranteed income. For example: what do people like most about their Social Security and their pension checks? They’re guaranteed income for life! That’s the attraction; we know the check is going to be there. Our planning starts with exactly that type of foundational income planning for the portfolio. And for those who have not yet started taking their Social Security, which is very important to understand in their overall retirement plan, how to maximize the availability of that guaranteed income. Add to that asset allocation—you might be missing out on some smart tax planning—and understanding how the different types of accounts are taxed or not taxed in retirement can help. That’s why we have a tax advisor, to help us with those exact issues. By professional alliance we have an unbeatable team of Certified Public Accountants, a law firm that can take care of any of your estate planning needs, and risk money managers that can offer anything in the financial services industry, and who are qualified and licensed to do so.
So here at Mayfield Financial and Estate Protection Services we are not proposing a single-product theory, we are in the business of solving problems and putting together the financial foundation that will last, guaranteed, for your lifetime and the lifetime of your spouse, if you wish. Adding to that, we can help you with any additional financial or estate planning needs that could be conceived necessary in your personal financial affairs.
Our team has no financial bias. In the proper planning, each segment needs to fit for the purpose of a long, successful retirement. When you build a house, you start from the foundation up. But the foundation has to be secure. Is it bricks, sticks, or straw? You’d better hope that the foundation is the strongest part of your planning portfolio; that part that has to hedge against longevity, because you don’t know how long you’re going to live (the X factor, as I call it), and how long you’re going to need money. Where is it going to come from? Is it guaranteed? If they can’t answer that it’s guaranteed, then I wouldn’t do it.
You’ve got to be able to match income with projected expenses—the essentials that you need, and how to take care of those along the way. You most certainly have to have something that will protect against a sequence of return risk, one of the most significant risks in any retirement plan. This is the risk of receiving low or negative returns in the early years of taking withdrawals from your investments. Your investment portfolio can decline substantially to the extent that you experience sizeable losses in the first ten years of retirement, which could totally derail the rest of your retirement years.
So in addition to offering predictable income on that part of your portfolio, you transfer that risk where you know you can add it to your Social Security income or your pension income, and you have this guaranteed income with these guaranteed products that will shield you from the sequence of return risk that is constantly looming in the financial future.
The popularity of this planning is on the rise. For the year 2016, it is up by 34%.That’s got to tell you something—people are really looking into it. Last year was the biggest year yet for this type of retirement income planning. So take a look at how this might work for you. It all depends on when you are going to retire, how much retirement savings you have as well as additional funds to add to that, and of course your lifestyle. When you have the financial foundation in place, then you can go ahead and build it in any way that makes you most comfortable for the discretionary funds. That might be on the risk side of the investment portfolio, but in most of the interviews we have with our risk money managers here, most of the clients are not even aware of what the potential earnings could be, what the potential losses could be, or anything about the fees that they’re being charged for the risk they are taking. We’re not against that, we just feel that you should know exactly what the reality of the possibility for earnings for the year could be, what the reality of the possibility of the losses could be (nobody really knows, but you’ve got some kind of an idea of the possibility based on your diversification and allocation, etc.), and most importantly to have an understanding of the fees you are paying for the privilege of risking your money. Financial institutions charge a variety of fees associated with investment accounts including account opening fees, service and maintenance fees, as well as trade fees. Advisory fees are typically calculated as a percentage of the assets under management, and are charged by the financial advisor to cover the service of advising the client on the investment choices and to cover administrative costs. You need to know what these fees are, and they should be laid out plain and simple. Average fees can range anywhere from 1.25% to as high as 1.5%, not including the possibility of additional product fees. You’ve got to look at the numbers, even if it’s a local discounted brokerage firm, or nationwide. Let’s say the advisory or brokerage fee is only something like 1.14%, or something very low that is reasonable. On top of that, let’s say the average mutual fund or ETF expense ratio is 0.27 to the expense ratio, if you add those two together you’re at 1.41% on your total expense ratio.
So having the proper amount of your portfolio to build the foundational income that you need, which is guaranteed, and having the balance of your portfolio for discretionary spending in the investment world can be easily done. The nice part about the guaranteed side is we never have the conversation about loss of principal, or having a downturn where you lose part of the portfolio, and we never ever have to talk about the income going down or not being available. It’s always there—it’s the guaranteed paycheck to see you through.
For further information or a free consultation, contact me:
Wm. Jed Mayfield, President
Mayfield Financial & Estate Protection Services, Inc.
Phone # 520-322-9773