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Wealth Teams Laboratory

Building a Retirement Income to Last

Welcome to the Wealth Teams Laboratory. 

This is where we research, study and test investment solutions that can bring excellent results to our clients.

A recent Dimensional Funds Client Satisfaction survey, covering more than 20,000 investors found their number one reason for using DFA Advisors was PEACE of MIND.

In conversations with our clients, we have affirmed that Peace of Mind means they don’t have to think about or worry their portfolio will underperform the markets.

They are comfortable their returns will be equivalent to what virtually any other investment manager will get over the years.

Why?

There are two reasons.

First, research shows very few investment managers can even match the market, let alone beat it.

But a better reason is because the DFA funds are the market.

Each fund is managed to reflect a specific submarket that comprises the entire market, both internationally and domestically.

Why is this important?

We all know markets go up and markets go down.

What investors fear the most is that their portfolio will somehow do worse than the market and they will lose a large percentage of their portfolio, when they can least afford it.

If you are planning to live off your portfolio in retirement, this could be catastrophic in markets like 2000-2003 or 2008-2009.

If you watched the Three Questions video – you know there are three questions virtually no one can answer about retirement – What is your Number – the amount you need in retirement.

What is your safe savings rate? The amount you need to be saving to reach your Number.

And the third question, What is your safe investment process?

Do you have a process that has the highest probability of reaching your retirement goal with the least amount of risk?

If your retirement income goal is $100,000 and your expected retirement period is 20 years – say age 70 to age 90. Your maximum retirement NUMBER is $2,000,000 – $100,000 times 20 years.

You can put this in the bank and take no market risk. It guarantees you $100,000 every year,

Your number can be reduced by other income – your social security, perhaps you have a pension, or you own an annuity.

Another way to reduce this amount is to invest in a portfolio that can produce the income you need. But what is the best way to do this?

How do you protect your income and at the same time participate in market growth to offset inflation?

Our work here at Wealth Teams is focused on helping our clients answer this question.

What are their options?

The most common is to withdraw funds from their investment account each month or quarter.

Most advisors suggest taking no more than 4% a year. However, extensive research by Dr. Wade Pfau, and others, has determined this income percentage should be much lower to assure the income recipient their capital will last through retirement.

They suggest 3.25% a year, instead of 4%.

The biggest risk in retirement is a significant market downturn in the early years. Academics refer to this risk, in the literature, as “Sequence Risk.”

If your retirement begins at exactly the wrong time, when the market drops 20-25% or more, your withdrawal that year is not going to be growth on your capital, but it will need to be from your capital.

Our book, Simple Retirement Math provides illustrations of how damaging this can be to your long term retirement plan.

Another approach is to take some of your capital and set it aside in an income account – you then withdraw the income from the separate account and invest the rest of the portfolio without having to rely on it to provide income.

The research shows down markets usually recover in 3-5 years.

This strategy removes your required income from sequence risk and gives your portfolio time to recover when the market goes down.

Remember, markets go up and markets go down. So this has every probability of happening.

The Wealth Teams Solution was developed to answer three important questions.

First, inflation – how much does your income need to increase to offset the rising costs of living?

The second factor is longevity – it is one thing to set a goal of 20 years, but what if you exceed that goal and live to 100. This is fastest growing segment of the population as measured by percentage.

The third question is sustainability. How confident are you that your income will remain consistent and constant in retirement? Our goal is to bring peace of mind to our clients through our research, discipline and process.

Warren Buffet wrote in the introduction to Benjamin Graham’s book, the Intelligent Investor, that you do not need to be super intelligent or a business whiz to invest successfully.

You only need two things – an intellectual framework – an investment process that is scientific and repeatable during the ups and downs of the market.

The second is equally important, you need to protect yourself against fear, when the market goes crazy. The Wealth Teams Retirement Solution was designed to give our clients both – a process and protection against market downturns.

How does our income strategy work? We divide our client’s investment portfolio into three buckets.

Government Securities

The first bucket is made up of government securities. It provides a consistent, stable income over a 10-15 year period that is inflation adjusted.

The payout is close to 7% annually plus inflation.

Debt Instruments

The second bucket is invested in debt instruments that are tied to mortgages. This bucket has a historical return of 8% or greater over the last decade.

Equity

The final bucket is your equity bucket. It uses the DFA portfolio to grow capital to replace the income that is paid out from bucket one.

If these three buckets work effectively, the result should produce a sustainable income that exceeds the expected 4% for your entire life, regardless of how long you live.

Here at the Wealth Teams Alliance, we are dedicated to providing clients with portfolio management that reflects the most recent discoveries and results, that are time tested and have the highest probabilities of delivering long term results consistent with the expected returns.

If you would like to know more about the Wealth Teams Retirement Solution and how it might improve your probabilities of receiving a consistent, stable income through retirement, contact us at the link following this video.

Thank you for joining us.

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