Disability Insurance is Paycheck Insurance

Your ability to earn an income is your greatest resource.  If not for your paycheck, you would not be able to put food on the table, clothes on your back, or a roof over your head. However, have you ever considered what would happen if you suddenly were unable to work due to an illness or injury? How will you replace your income?  According to a survey from Life Happens, “Half of working Americans couldn’t make it a month before financial difficulties would set in, and almost one in four would have problems immediately”. This why it is important to have disability insurance.

Disability Insurance is protection for your paycheck. It will cover part of your salary if you become disabled and will end when you return to work.  There are two types of disability coverages offered. The first is short-term and will usually cover the first three months of a disability. The second is long-term. Long-Term Disability Insurance kicks in after six months.  Long-term disability coverage usually lasts for two, five or 10 years, or until age 65 or 67, depending on the policy. Disability Insurance can usually be gotten through work as an employee benefit, but it can also be obtained through an insurance company offering this coverage. Insurance purchased through a company generally replaces 40 percent to 60 percent of your income. About 60 percent of your income is typically paid to you if you get coverage through work.

 

When it comes to who should get disability insurance, the answer is clear:  Anyone who earns a paycheck should get a policy. Consider this statement from the article, Disability Insurance: Learn Why You Need It. “According to the Council for Disability Awareness (CDA), more than one in four people in their 20s will probably become disabled before retiring. The council adds that one in eight workers can expect to be disabled for five years or more before retirement.”*  Furthermore, a 25-year-old worker who makes $50,000 a year and suffers a permanent disability could lose $3.8 million in future earnings. Are you prepared to take this risk with your or your family’s well being?

You insure your home, your car, and your life.  Why not insure your paycheck? Check with your company’s benefits office to obtain information on the coverage offered. Then, take this information to an advisor who can educate you on the coverage and determine if it is the right amount for you. If your employer does not offer disability insurance, discuss your coverage needs with an advisor and find out what options are available that will meet your budget.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.


(Disability Insurance Benefits could be subject to the claims-paying ability of the Insurance Company.)

Sources:

*Disability Insurance: Learn Why You Need It by Michael Chalon Smith;

LIFE Happens.org

What Can a Buy-Sell Plan Do for Your Small Business

In 2016, there were 28.8 million small businesses according to the Small Business Administration. Small Business accounts for 99.7% of U.S Businesses, which employee 56.8 million people. Here in Carteret County, the overwhelming majority of businesses are small businesses. Many are owned by partners while others are entities (C or S Corps).

No matter the ownership or number of employees, one issue that should be of concern is the death of one of the owners.  This occurrence brings several questions. What will happen to the business? Will the deceased owner have a family member who wants to step into his/her position? If so, will this person be qualified to do so? What impact will the death have on the operational and financial stability of the business? These issues and others can be addressed by a Buy-Sell Agreement funded with life insurance.

There are two types of Buy-Sell Agreements, Cross Purchase, and Entity Purchase. A Cross Purchase Agreement is usually best when a business has 2-3 owners.  In this type of agreement, the partner(s) purchase a life insurance policy on each other.  The death benefit will be approximately equal to an agreed upon purchase price. The owner and the beneficiary is the same person and the other partner is the insured. The owner pays the policy premiums which are not tax-deductible.  At a partner’s death, the surviving partner(s) receive a death benefit income-tax free from the life insurance policy owned on the deceased. The surviving partner(s) use the life insurance proceeds to buy the deceased partner’s share of the business from his/her estate at the agreed upon purchase price.  

An Entity Purchase is best used when a business has 4 or more owners. The Business and the owners enter into an entity purchase buy-sell agreement.  The Business purchases a life insurance policy on each owner. The Business is the owner and beneficiary of each policy.  

The Business pays the policy premiums which are not tax-deductible. At an owner’s death, the business receives a death benefit tax-free from the life insurance policy. The Business uses the policy proceeds to buy the deceased partner’s share of the ownership from his/her estate at the agreed upon purchase price.

With any business sale/purchase, there will be taxes involved. When it comes to the taxation of a buy-sell agreement, there are some similarities and differences between the cross-purchase and entity agreements. In both agreements, the Death Benefits are received tax-free by the partner(s) or business; however, make sure policy ownership is properly arranged so the death benefits will not be included in the deceased’s estate.  Also, in both cases, if the amount received by the estate equals the fair market value of the partnership or business at the time of death, there will be no taxable gain for federal income tax purposes. In an Entity Purchase, the business must obtain notice and consent from the insured prior to the policy being issued otherwise the death benefits will not be received tax-free. In addition, with an Entity Purchase, some C Corporations may be subject to the Alternative Minimum Tax (AMT).

A Buy-Sell Plan is a strategy most small businesses should consider. However, it is important to assemble the appropriate team to make sure the plan is structured correctly.  An attorney is required to draft the agreement so it will be legal and binding.  A Tax Professional is needed to make sure the agreement provides the desired tax results. Finally, an Advisor/Agent is necessary to write and service the life insurance policies. When done correctly, a buy-sell plan can provide an orderly succession of ownership for a business at a difficult time.

(Note- In the case of a single owner business, the owner may enter into a buy-sell agreement with an employee or interested buyer.)

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.

(Life Insurance Benefits could be subject to the claims-paying ability of the Life Insurance Company.)

Role of Dividends

Dividends should be an important part of any investment plan.  Unfortunately, many investors don’t consider dividends and even overlook them.  Dividends are overlooked because their effect on an individual portfolio is not readily apparent unlike a change in the price of an investment. So, what role do dividends play in an investment plan?

The first is income. Many companies have a long history of paying their stockholders dividends. For many individuals, but especially retirees, they are a source of income. When creating a dividend income stream, it important to devise a portfolio consisting of stocks of profitable companies with a history of paying, as well as, increasing dividends. It is also essential to choose stocks that pay dividends during different months so there is monthly income. For example, you could build an income stream using Philip Morris (PM), General Dynamics (GD), and Exxon Mobil (XOM).  

Stock	Month Dividend is Paid
Philip Morris (PM)	January, April, July, October
General Dynamics (GD)	February, May, August, November
Exxon Mobil (XOM)	March, June, September, December

(This chart is for illustrative purposes and does not constitute a recommendation.)

Notice how the stocks work together to provide a steady stream of dividend income.  They pay in different months throughout the year and there are no gaps. Keep in mind a sufficient amount of money is required for individual stocks to create a desired income. A portfolio of mutual funds and exchange-traded funds invested in these companies can also provide dividends. Funds with terms like high-dividend, growth and income, and equity-income in their names are examples. Make sure you read the funds information sheet and prospectus for guidance.

Dividends are a useful tool to build wealth.  Just about every investment company allow clients to reinvest dividends back into the stocks, mutual funds, and exchange-traded funds inside their accounts. When these dividends are reinvested, more shares are purchased.  This is called a Dividend Reinvestment Plan (DRIP).  For example, a company, ABC Inc’s, stock is valued at $10 per share. ABC Inc declares a dividend of one dollar per share. A DRIP participant holding 100 shares will receive 10 shares of company stock (100 shares/$10 per share = 10 shares).  These reinvested shares have increased the value of this holding.  Before the dividend was paid out, ABC Inc’s holding was worth $1000 (100 shares x $10 per share).  After the dividend was reinvested, ABC, Inc’s holding is now worth $1100. (110 shares x $10 per share). By reinvesting the dividend, ABC, Inc’s value increased by $100.*    

* This example is for illustrative purposes only.  Results may vary. Reinvesting dividends do not guarantee an increase in value.

Finally, dividends can offset declines in the value of a portfolio during market declines. Whether a dividend is reinvested or taken as income, it first passes through an investor’s portfolio and counts towards the value of the account. In the example below, a hypothetical client statement for the month has this information on the first page.

Opening Value	$1000.00
Cash Deposited	$0.00
Investment Value Change	-$100.00
Dividends Paid	$200.00
Closing Value	$1100.00

(This example is for illustrative purposes only.  Results may vary.)

The dividends in this example proved to be significant. Notice the value of the combined investments declined $100.  Yet, the closing value was $1100.00.  The $200 worth of dividends offset the investment drop and created a gain in the value of the account for the month.  Unfortunately, this example is not always the case.  However, even if the investments had dropped $300, the $200 dividend payment would have resulted in a $900 closing value. Think what would have happened without the dividends?

Dividends serve many roles for an investor whether it be income, wealth building, or providing a cushion for a portfolio during market declines.  There is one detail to keep in mind about dividends.  They are taxed as income unless paid inside a retirement or other tax-exempt account.  It important to discuss the potential tax implications of any dividend strategy with an investment advisor and tax professional.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.

Use Life Insurance to Leave a Legacy

The Merriam-Webster Dictionary defines Legacy as a “gift by will especially of money or other personal property”. Many people leave a legacy every year as part of their last will and testament.  This legacy comes in the form of cash being left to honor other individuals, institutions, religious organizations, or charities they feel very strongly about. The gift, in some cases many years in the making, comes as a result of financial success. Just take a look at any named college building, scholarship, or hospital wing as an example. At some point, we all reaped a benefit from one of the above legacies.    

How many of us would like to leave something behind to benefit others?  How many of us would like to leave an impact after we are gone?  The answer is probably most people.  Unfortunately, many individuals don’t carry through with this because of their financial situation.  Let’s be honest, the examples above were left by men and women who were very wealthy and possessed a high-net-worth.

However, this is a relatively inexpensive strategy that allows for a middle class or working class individual to leave their mark.  You can purchase a life insurance policy and name any individual or organization as the benefactor.  For example, a 50-year-old male, non-smoker, with an income of $40,000 per year wants to set aside $45.00/month to leave to the university from which he graduated. This would help fund a scholarship for students majoring in history. For this cost, the man would fund a $100,000 term life insurance policy, plus if he adds a waiver of premium rider, the policy will stay in force if he should become disabled and can no longer pay the premiums.  Upon his death, our man’s wish of leaving something to his university is accomplished. The university receives $100,000 tax-free which they then use to set up a scholarship for history majors; to show their gratitude, the scholarship will bear his name. Not bad for a middle-income earner.

If you wish to leave a legacy, life insurance can provide the answer.  You don’t have to be rich to use this strategy and the premiums are affordable.  An advisor or life insurance agent can help you make a difference that will last for generations.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.

(Life Insurance Benefits could be subject to the claims-paying ability of the Life Insurance Company.)

Using Whole Life Insurance as a Roth IRA

Would you like to contribute to a Roth IRA but cannot due to high-income limitations? Are you making maximum contributions to a Roth IRA and wish you could contribute more? Would you like to have a source of tax-free income in retirement? Would you like to pass something to your heirs’ income tax-free? If you answered YES to any of these questions, perhaps Whole Life Insurance would be just the thing for you.

While a Roth IRA and Whole Life Insurance share several important attributes, whole life insurance offers features that are not available with a Roth IRA. First, contributions to both are made with after-tax dollars. However, annual contributions to a Roth IRA are limited to $6000.00 ($7000.00 for Age 50 and over) plus if you make a certain amount of income, you could be ineligible to contribute.  Most Whole Life Insurance policies will usually allow for extra premium payments which are greater than Roth IRA contributions.

A second characteristic shared by a Roth IRA and Whole Life Insurance is the contributions to each grows on a tax-deferred basis.  This is a great way to build wealth free of taxes.  There is a difference between the two on how the contributions are invested. Most Roth IRA contributions are invested in mutual funds which are subject to market risk which, in turn, will cause the value of the account to fluctuate.  On the other hand, premiums paid to a whole life insurance policy are put into interest-paying investments that provide a fixed rate of return free of market volatility. This return is the policy’s cash value and compounds over time.

A third shared feature between a Roth IRA and Whole Life Insurance is that the distributions from each is tax-free.  After age 59 ½ and the Roth IRA has been in existence for five-years, distributions are tax-free. Distributions can be taken from  Whole Life Insurance at any time as a tax-free loan as long as there is cash value to cover it and the policy is in-force.*  In addition, life insurance companies will occasionally return some of their profits to their whole life policyholders as dividends.  These dividends are considered the return of premium and by IRS rules are tax-exempt.

A final hallmark of both a Roth IRA and Whole Life Insurance is each has a beneficiary feature.  When a Roth IRA is opened, the account owner must name a beneficiary (usually a spouse) if he/she passes away.  However, a Roth IRA is included in the account owner’s gross estate and could be subject to federal and state estate taxes where applicable. Whole Life Insurance pays a tax-free death benefit to the insured’s beneficiary.  

When deciding on whether to use Whole Life Insurance instead of or in conjunction with a Roth IRA, you need to consider your present and future tax situation, goals, and estate plan. An advisor, a tax professional, and estate attorney will all prove useful in this decision.

* If Tax-Free Loans are taken and the policy lapses, a taxable event may occur.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)

Disclosures: 1. Life Insurance Cash Values Grow Without Being Subject to Current Taxation. Dividends are Not Guaranteed.  Certain conditions apply if the policy is classified as a Modified Endowment Contract.  Always Consult a Tax Professional regarding your personal situation to determine the suitability of the use of whole life insurance.

Life Insurance as a Business Planning Tool: Key Person Insurance

When it comes to business ownership, maintaining a comprehensive business plan is extremely important. A business plan is a blueprint for a company's operation.  It lays out policies, procedures, and principles which guide the business and the tools to be used.  Of the many planning tools at the disposal of a business, there is one that is often overlooked. It is Life Insurance. 

Life Insurance has many uses in business beyond a group plan as an employee benefit. Life Insurance can actually be used to safeguard a business in the event of the loss of an important employee. This strategy is Key Person Insurance.

One of the worst things to happen to any business is for one of its managers, high producing salesperson, lead technician, chef,... to pass away.  This person's loss could possibly result in a loss of revenue, credibility, or leadership.  A Key Person policy offsets any potential drop in profits or pays for the replacement of this individual.  The business is the owner and beneficiary of this insurance policy. The business must have the key person's permission to take the policy on his/her life. Premiums are paid by the business which is NOT tax deductible.  However, the proceeds from the policy are received by the business free from income taxes.

No matter whether the business is large or small, all have that one (or more) individual whose loss would be a potential blow to the bottom line or operations.  Safeguarding your business by insuring the life of this employee could prove to be a prudent move.  

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)

What to Consider About Life Insurance By Matt Dressel

The decision to purchase life insurance is very important.  It is a key part of your financial plan.  It pays your final expenses, provides funds to replace your lost income as well as to settle debts such as a mortgage, medical expenses, credit cards, or student loans. However, many individuals buy life insurance based solely on the cost of the premium without considering the features and benefits of the policy as well as how it meets their overall life situation. So what things should you consider when looking to obtain a life insurance policy?

Let’s start with the base policy.  The death benefit is the major feature of any life insurance policy. Ask yourself is the benefit payment going to be enough?  Will it keep pace with inflation?  These two questions are crucial if you have debts such as a mortgage or future plans for sending a child to college. Another thing to consider is what else is offered as part of the base policy at no charge.  For example, many insurers offer an Accelerated Death Benefit.  This rider allows the insured to access a certain percent of the death benefit in the event of a terminal illness.  If you have a family history of terminal illness this benefit could cover a large portion of the medical bills. Some insurers offer this benefit as a rider for an additional cost but why pay an added charge if you don’t have to?  Finally, if you are looking at a Whole Life or Universal Life Policy, the Cash Value will need to be considered. Will the interest rates build the cash value you need to help meet any goals or challenges, especially during your retirement or if you are in a high-income tax bracket?  Also, does the insurer have a past history of paying yearly dividends?  When looking at the base policy make sure it is aligned with your individual needs and financial goals in a cost effective manner.

The next thing to consider in obtaining a life insurance policy is the choice of riders that can be added to it.  Riders allow you to further design a policy to meet your needs and goals. Most riders come with an added charge, but some policies have free riders such as the Accelerated Death Benefit Rider described earlier. The following is a summary of the most common riders.

• The Waiver of Premium waives the premium payment if you become disabled as defined in the life insurance policy. If you work with machinery, chemicals, or any area that requires heavy exertion or heat exposure, this rider would be appropriate.

• The Accidental Death Benefit pays an additional benefit if your death is accidental. If you drive long distances regularly to work or school, work as a professional driver or delivery person, or work in construction or a construction related field, you should consider this rider.  

• The Option to Purchase Additional Insurance allows you to purchase additional coverage at specified dates in the future regardless of health or occupation. This rider is a great planning tool to protect your growing assets, your family, and your income as well as protects against inflation. If you are anticipating a salary increase, having children/more children, or assuming the care of an aging parent/relative, this rider would be valuable.

• A Term Rider allows you to buy temporary additional coverage on yourself without the expense of getting another policy.  This is a great way to help protect your assets from temporary or short-term debts associated with accessing a line of credit or a home equity line.

• The Child/Family Rider allows you to buy temporary additional coverage on a child or other family member without the expense of getting another policy. This is useful for final expense coverage or as starter coverage for a child.

• A Long-Term Care Rider allows you to pay for qualified long-term care expenses. This rider is ideal for individuals with a family history of long life spans and/or who want to avoid tapping into their other assets to pay for long-term care expenses.

Life Insurance is a major component of your financial plan.  Choosing a policy based only on the premium could be harmful in the long run. In short, you "get what you pay for".  It is important that you evaluate and design a policy to meet your financial needs and goals.  A financial advisor and/or a life insurance agent will work with you to make sure you have the right coverage.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)

Are Traditional or Roth Contributions to Your 401(k) Better?

When investing in a 401(k), it important to determine whether making Traditional (Before-Tax ) or Roth (After-Tax) contributions would be more beneficial to your long-term retirement strategy.  When you retire and begin withdrawing money from your 401(k), the type of contribution you made to your account determine what, if any, tax you pay on these distributions.  If you make Traditional contributions, you will have to pay income tax on withdrawals.  If you make Roth contributions, you will not pay income taxes on these distributions.

When it comes to determining whether Traditional or Roth Contributions would be better for you, there are calculators to help you with this decision.  Many financial companies, mutual fund providers, and banks have these calculators on their website.  These calculators are easy to use and require you to input a few numbers.  Once this done, a report can be generated letting you know whether Traditional or Roth contributions would be better for you.  Below are two examples:

Client #1 

Based on the information you entered, a Roth account may be worth more than a traditional account.

A Roth 401(k) may be worth $14,815 more than a traditional 401(k).

Results Summary

	Traditional 401(k)	Roth 401(k)
Total contributions	$108,000	$108,000
Total before taxes	$463,504	$463,504
Value of investing tax savings	+ $54,711	+ 0
Taxes for 401(k) at retirement	- $69,526	- 0
Value at retirement (age 65)	$448,689	$463,504
A Roth 401(k) may be worth $14,815 more than a traditional 401(k).

Input Summary

Annual contribution*	$3,000	Current age	29
Years until retirement	36	Age of retirement	65
Expected rate of return	7%
Current tax rate	15%	Retirement tax rate	15%

Client #2

Based on the information you entered, a traditional account may be worth more than a Roth account.

A traditional 401(k) may be worth $8,464 more than a Roth 401(k).

Results Summary

	Traditional 401(k)	Roth 401(k)
Total contributions	$108,000	$108,000
Total before taxes	$463,504	$463,504
Value of investing tax savings	+ $77,990	+ 0
Taxes for 401(k) at retirement	- $69,526	- 0
Value at retirement (age 65)	$471,968	$463,504
A traditional 401(k) may be worth $8,464 more than a Roth 401(k).

Input Summary

Annual contribution*	$3,000	Current age	29
Years until retirement	36	Age of retirement	65
Expected rate of return	7%
Current tax rate	25%	Retirement tax rate	15%

As you notice, the results were different. Client #1 found Roth Contributions more beneficial while Client #2 benefitted more from Traditional Contributions. Client #1 would have a larger estimated value from Roth Contributions due to the tax savings in retirement.  Client #2 would have a larger estimated value from Traditional Contributions due to the tax savings they generated.

One final note in this example.  Even though the contributions and expected rate of return were the same, the clients were in different income tax brackets. Your tax bracket, both now and the future, are major determiners in the Traditional vs Roth Contribution decision.  Therefore, it important to both make good use of this type of calculator every time you have a change in income and discuss the results with your tax professional before implementing.    



Disclaimers

1. I.F.S.G. is a fee-based registered independent advisory specializing in investments and life insurance solutions.
2. I.F.S.G. does not give tax advice. You should consult your tax professional before making any financial decisions.
3. Securities provided by Trade PMR. Fixed income products provided to Trade PMR by Advisor Asset Management, Crew & Associates, and JBB Financial.
4. Investing Money in securities exposes investors to risks including loss of principal and past performance is not an indicator of future returns. Investors should carefully consider investment risks, objectives, charges, and expenses.

Matt Dressel is the Owner of the Independent Financial Solutions Group. If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com

The Rule of 72

Have you ever wanted to find out how many years it will take to double your money? Or have you ever wanted to find out what interest rate you will need to double your money in a set of years? There is a very simple and effective method to answer your question. It is called the Rule of 72.  Here is out it works.

Let's say you put $1000 into an investment that pays 6% interest every year and you want to find out how many years it will take your investment to double. Using the Rule of 72, you would take the Number 72 and Divided It By the Interest Rate. 

Our calculation would be the Number 72/ the Interest Rate. 

72/6% = 12 Years to Double Your Money

Now let's say 12 years is too long of a time period for you to double your money. Instead, you want to double your money in 8 years.  Using the Rule of 72, you would take the Number 72 and Divided It By the Number Years in Which You Want to Double Your Money. 

Our calculation would be the Number 72/ the Number of Years

72/8 Years = 9% Interest Rate

The Rule of 72 is a great way to determine how long it will take to double your money or what interest rate you will need. I hope this information proves useful.

Disclaimers

1. I.F.S.G. is a fee-based registered independent advisory specializing in investments and life insurance solutions.
2. I.F.S.G. does not give tax advice. You should consult your tax professional before making any financial decisions.
3. Securities provided by Trade PMR. Fixed income products provided to Trade PMR by Advisor Asset Management, Crew & Associates, and JBB Financial.
4. Investing Money in securities exposes investors to risks including loss of principal and past performance is not an indicator of future returns. Investors should carefully consider investment risks, objectives, charges, and expenses.

Matt Dressel is the Owner of the Independent Financial Solutions Group. If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com

Retirement Investing By Matt Dressel of the Independent Financial Solutions Group

Investing for retirement means allocating your money across the different types of investments to achieve the twin goals of accumulating enough money for retirement then making sure you don't run out of money once in retirement.

A retirement portfolio should be managed on the basis of your accumulation and distribution phases. The Accumulation Phase is the time period when you are saving and investing money to reach your goal.  The Distribution Phase is the time period when you are withdrawing money from your investments once the goal is achieved.

The following is an example of a retirement portfolio management based on someone with the following information:

Time Horizon: 30 Year Accumulation Phase

Risk Tolerance: High

Goal: Retirement

Assumption:  The Client is 35 Years Old and will have a 30 Year Distribution Phase.

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Accumulation Phase:

Years: 1-25                                Years: 26-30

Growth- 40%                             Growth- 35%

Growth & Income- 40%             Growth & Income- 45%

Income/Cash- 20%*                   Income/Cash- 20%*

                                               * 2%-3% Cash

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Distribution Phase:

Years: 1-5 Years:                      6-10 Years:                                 11-15 Years

Growth- 35%                            Growth- 25%                              Growth- 15%

Growth & Income- 45%            Growth & Income- 40%               Growth & Income- 30%

Income/Cash- 20*                     Balanced- 5%                             Balanced- 15%

* 2%-3% Cash                           Income- 25%                             Income- 35%

                                                Cash- 5%                                    Cash- 5%

Years: 16-20                              Years: 21-25                               Years: 26-30

Growth- 10%                             Growth- 5%                               Growth- 0%

Growth & Income- 20%             Growth & Income- 10%              Growth & Income- 0%

Balanced- 20%                          Balanced- 30%                          Balanced- 40%

Income- 45%                             Income- 50%                             Income- 50%

Cash- 5%                                   Cash- 5%                                  Cash- 10%

Note- These allocations can be adjusted during times of extreme and prolonged market declines

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As you notice in our example above, the accumulation phase portfolio changes very little. The purposes here is to focus your attention on growing your money.  This means a
portfolio that is heavy on growth and growth & income investments.  However, once the distribution phase is reached, there are frequent adjustments.  The focus has now become generating income to live on, preservation of money for unforeseen issues, and continue growing your funds so as not to run out of money. Therefore, an increased use in balanced and income investments over time is now in place.

Investing is key for a comfortable retirement.  An investment professional can help you put together and manage a portfolio to achieve your retirement goal. 

Disclaimers

1. I.F.S.G. is a fee-based registered independent advisory specializing in investments and life insurance solutions.
2. I.F.S.G. does not give tax advice. You should consult your tax professional before making any financial decisions.
3. Securities provided by Trade PMR. Fixed income products provided to Trade PMR by Advisor Asset Management, Crew & Associates, and JBB Financial.
4. Investing Money in securities exposes investors to risks including loss of principal and past performance is not an indicator of future returns. Investors should carefully consider investment risks, objectives, charges, and expenses.

Matt Dressel is the Owner of the Independent Financial Solutions Group. If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com