The bristlecone pine, the oldest and most durable of all tree species, grows in only a select few high altitude locations in the western United States. Some of these trees are estimated to be as old as the Egyptian pyramids. Lightning strikes, droughts, temperatures of fifty degrees below zero and snow depths of ten to fifteen feet annually are the challenges of the environment where the bristlecone pine thrives.

 

At Peterson Wealth Advisors we have chosen the Bristlecone pine as the enduring symbol of our company and it represents the unique and timeless process we have created that is designed to help retirees provide income from their investments that will last throughout retirement and withstand financial storms.

Our unique process, “The Perennial Income Model”, is an investment plan that protects retirees’ current income from stock market volatility while at the same time protects their future income from the subtle yet devastating effects of inflation.

How does The Perennial Income Model work?

 

Simply put, the Perennial Income Model matches the retiree’s investments with their future income needs. Retirees can’t afford to lose money because they are forced to sell stocks at a loss to provide monthly income during the early years of retirement.

On the other hand retirees can’t afford to not keep up with inflation by avoiding stocks altogether during the later stages of retirement. The Perennial Income Model segments a retiree’s investable assets into six separate investment portfolios. Each portfolio is dedicated to provide income for a five year segment of retirement.

For example, segment one is dedicated to provide income for the first five years of retirement, segment two for years six through ten of retirement, segment three for years eleven through fifteen of retirement and so on until thirty years of retirement are covered. By segmenting retirement assets this way, we can manage the six investment portfolios to specifically align with the time periods in which they are responsible to provide income.

Segment one is where the retiree would draw income from for the first five years of retirement. Stock market volatility is the greatest threat to the early income producing requirements of this segment. Therefore safety of principal is the primary investment objective of segment one. Segment two will not need to be tapped for income until year six. So while segment one is providing income for the first five years of retirement, segment two is growing in a conservative portfolio. Because segment three won’t be needed until year ten, it can be invested in a slightly more aggressively managed portfolio than segment two. Segments four, five and six are invested in incrementally more aggressive portfolios because they will not be responsible to provide income for fifteen, twenty and twenty five years. The greatest threat to the later years of retirement is inflation and even though stocks at times cause anxiety because of short term volatility, they do provide a hedge against inflation in the long run. Short term volatility is inconsequential for investment portfolios that will not be needed for fifteen, twenty or even twenty-five years in the future.

Harvesting

The Perennial Income Model is a goal driven investment program. Once the investment objective is reached for a specific segment then it is recommended that the investments associated with that segment be invested more conservatively, we refer to this as harvesting.

For example, let’s say that we have money invested in an account that is dedicated to provide income for segment five of retirement (years twenty one to twenty five). Let’s assume that we know that we will need $300,000 to be accumulated in segment five by the time year twenty one arrives. We initially estimated that the money invested in segment five would receive a 7% return in the investment portfolio for the first twenty years of retirement growing to the goal of $300,000 while segments one, two, three and four are being distributed.

If we were to have a good run in the markets and we were to average 9% versus the projected 7%, segment five would meet its goal of $300,000 in year 16 versus year 21

We recommend harvesting or locking in gains upon completion of the investment goal for the specific segments. This is done by transferring the funds in that segment to a conservative portfolio. Critics of this method of investing would argue that by transferring investments from aggressive to conservative portfolios prematurely we would limit those segments potential for future gains. We confidently reply that the Perennial Income Model’s top priority is not to ignore risk and maximize investment returns rather it’s primary purpose is to provide a predictable inflation adjusted stream of income to the retiree with the least amount of risk.

The Perennial Income Model is a common sense approach to managing money during retirement. For a personalized analysis of how the Perennial Income Model would work in your situation contact us.

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