Bond Voyage: Sailing Into Retirement Stability

A lot of people talk about bonds as a way to generate income “safely” in retirement and say that all you need is to own a bunch of bonds and you’ll be safe, but I don’t necessarily agree with that. There are ways to use bonds for retirement income but it needs to be done in a way that is specific to your unique retirement needs. In this episode, I’ll share the most important information you need to know in order to build a retirement portfolio that allows you to fulfill your retirement goals.

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Thanks for Listening!

Jonathan

Chapters

• 0:04 Retirement Income
• 8:54 Financial Advice Disclaimer and Bond Risks

Transcript

Speaker 1: 0:04

Welcome to what the Wealth? A financial planning and investment podcast for professionals and families to help you navigate life's financial transitions. Jonathan's mission is to facilitate the ability for you to plan for and create the life you love, free from anxiety about money. And now here's your host, certified financial planner, jonathan Bedner.

Speaker 2: 0:28

Hello Jonathan Bedner here, certified financial planner. Today we're going to talk about bond voyage sailing into retirement stability. Now a lot of people talk about bonds as a way to just generate income in retirement and just own a bunch of bonds and you'll be safe. I don't agree with that. We need, as investors, to be long-term equity investors. This is the way that we beat inflation. This is the way that we ensure that our investments grow. They provide income for our lives. They're there to use to fund our dreams and our goals and our objectives. They're there to pay health care expenses if and when that need arises. So it is very important to own equities and stocks in your portfolio. But what if we need to supplement our income from our account and use some of our investments to provide us income? This is common.

Speaker 2: 1:28

A lot of times people turn income on from their portfolio as a way to supplement life. They could be claiming social security, they could have a pension, maybe they have rental properties there's all sorts of things that could potentially generate income. Maybe they're working kind of a side hustle. But they need another additional layer of income and that comes from your retirement portfolio. You don't work 40 years in your life to not have the opportunity to turn your income, your savings, on to provide you additional income in retirement. So this is where bonds come into play. A lot of times, we're using bonds to provide five years worth of income, and so what a lot of advisors do is they'll own a bond index or bond investments that are perpetual. They just last forever. There's no end in insight, and the idea is, if they put you in a 60-40 portfolio and you've got 60% equity and you've got 40% bonds, then that's your retirement portfolio and that's okay. There's just not a lot of thought put into designing that portfolio, and I want to make sure that I am clear. We have 60, 40, and 70, 30, and 80, 20, and 90, 10 portfolios. We create these portfolios for people, but we do so in a way to know that once it's time to turn income on, we've got these bonds layered to provide you income.

Speaker 2: 3:09

So if you're in a 60, 40 portfolio, we might be using that to say okay, as soon as we take on income, we've got four years worth of income. That aside, if we're using a 70, 30 portfolio, maybe you're younger, maybe you're willing to take a little bit more risk, maybe your social security is higher. Maybe you have a pension, maybe you have rental income, whatever it is, but maybe we don't need to supplement our portfolio so much. Or maybe you have not portfolio but our income so much. Or maybe you have a retirement and emergency fund cushion to kind of ease and help support your retirement income. So if you're in a 70, 30 portfolio, maybe we've got three years worth of income set aside. We wanna make sure that we've got, as you're in retirement, a bucket very intentional, a bucket of money for you to draw on that would provide income for a defined period of time, and I prefer that to be four to five years. I wanna be able to kind of say in a bucketing strategy this money is the money we're gonna take for the next four to five years and then after that, or I guess in the meantime, that'll be letting our stocks, our equities, continue to grow for you, for your long-term investing needs, and then, once that four or five year bucket is depleted from the bonds, we'll then go to the next bucket, which may be rebalancing, to refill the bond bucket. It may be turning on Social Security, which we delayed, could be selling a rental house, it could be just turning on more portfolio income.

Speaker 2: 4:51

There's a lot of ways that you can kind of slice and dice these portfolios and retirement income to meet your objectives, and I think that's what's important about personal finance is that it is specific for you, and that's one of the things we do for clients at Paradigm of Partners is design specific retirement income plans for our clients, and one of the ways we do this is by bucketing or segmenting out a portion of the bond with a fixed income for your future income. The way that we do this is not by owning bonds that are perpetual, but we do this by owning bonds that have defined maturity dates, meaning we buy bonds that might mature in 2023, bonds that might mature in 24 and 25 and 26. And so if we're gonna put 40% of your money in bonds because you're closer to retirement or closer to needing that income off of your portfolio, what we would do is we would put 10% in the 2023 and 10% in the 24 and 10% in the 25 and 10% in the 26. Now I know that, as 2023, as you need income in 2023, we're using the income off of that 2023 bond. Same thing happens in 2024, the 25 and 26, and so while we're not using let's just say again 2023, for example, while we're not touching 24, 25 and 26. In that scenario, it's continuing to earn interest from the bonds that have been loaned or the money that you've loaned out to other people, and so it's a way to earn something on that money until it's time to turn on the income from that. Once the 2023 is depleted, then we move to 2024. These are just simple ways that a financial advisor, a certified financial planner, can make retirement income planning simple. I think far too many certified financial planners and financial advisors make investing and retirement planning way more complicated than it should be.

Speaker 2: 7:14

This is back of the napkin stuff. If you have questions about creating a bond sleeve in your account to provide retirement income, or if you have questions about what a retirement income should look like, what is a good number that I should project? How should I project what I get from Social Security and pension and retirement? How can I know what I can safely spend in life without running out of money? That's the big question. That's what people wanna know. How can I spend money in retirement, but how can I make sure that I have enough to suffice and to live for my entire retirement, which many people are living into their 80s and 90s and even hundreds, and so it's important, as technology and advances and healthcare advances, that you have a plan and a strategy as well to provide those needs the retirement income for your life.

Speaker 2: 8:17

Thanks for listening to the what the Wealth podcast. If you have questions about fixed income or bonds or just would like help with your retirement income plan, reach out. If you haven't already liked and subscribed, please do so. Have a wonderful weekend. Be confident in your retirement. Have a great day.

Speaker 1: 8:38

Thank you for joining us on what the Wealth. For more information, get in touch with Jonathan at WhattheWealthcom. Remember to subscribe to the podcast so you don't miss any information that can help you create the life you love. The information of this podcast is educational and general in nature and does not take into consideration the listener's personal circumstances. Therefore, it is not intended to be a substitute for specific, individualized financial, legal or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision. Security is offered through LPL Financial member, finra, sipc Investment advice offered through Paradigm Wealth Partners, a registered investment advisor and separate entity from LPL Financial Bonds are subject to market and interest rate risk.

Speaker 2: 9:23

if sold prior to maturity, Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Bond yields are subject to change. Certain call or special redemption features may also exist which could impact yield.