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Continue growing your retirement savings while withdrawing funds

Retirees are having a hard time growing their assets while, at the same time, having to rely on and withdraw their funds to pay the bills during retirement. This is often a result of low interest rates on retirees’ investment accounts. If retirees can’t grow their assets while taking withdrawals, they will run out of money or be forced to reduce their lifestyle. By understanding certain fundamental retirement and investing principles, you may increase the probability of growing your assets in retirement.


Do

Do understand what rate of return you need

By understanding the rate of return you need to live and continue to grow your portfolio, you’ll be able to create the appropriate balance between income and growth. This is critical to making your assets grow even while you withdraw the funds you have. The proper balance can depend on your current income needs, future income needs, and risk tolerance.

Do have dividends in your portfolio

Dividend-paying stocks offer current income, opportunity for increasing income, and potential for long-term capital appreciation. While the higher volatility of stocks is often the focus (compared to bonds), even a conservative allocation to dividend stocks can greatly increase the probability of being able to grow your portfolio in retirement. If your withdrawal rate is 4.5 percent, and your portfolio’s dividend yield is 4 percent, then 90 percent of your income is being generated from dividends and not simply depleting your capital. This is critical in being able to grow your portfolio while taking income.

Do have global diversification

Many retirees focus on income streams from the U.S. only. However, interest rates and dividends are higher internationally. Having a portion of your assets producing income from international sources can help increase your overall income. At the same time, it can reduce portfolio volatility, and help you in times of domestic inflation or currency devaluation.

Do make sure your fixed income portion is laddered

Laddering is diversifying the maturity of your bond portfolio to reduce interest rate risk. Interest rate risk is one of the largest risk retirees face in the current economic environment. A 30-year AAA rated treasury bond can be expected to decrease by approximately 75 percent if interest rates increase 4 percent, which would be to historical averages. By laddering bonds of different maturities, you can take advantage of higher rates as short term bonds come due in your portfolio. This is extremely important in order to be able to grow your portfolio and income over time.

Do have a portion in precious metals such as gold and silver

While most retirees seem to avoid precious metals because they don’t pay interest, precious metals historically act as inflation insurance and can protect your assets from rapid inflation. Just as bonds hedge against the downside in stocks, precious metals hedge against the downside in the dollar’s strength. The appropriate amount can depend on your current income needs, risk tolerance, and the amount of pension assets you're attempting to protect.


Don't

Do not focus your assets only in the highest yielding investment

Retirement is a marathon—not a sprint. At the current and projected rate of about two percent inflation in the U.S., the cost of living will increase a little more than 30 percent every 14 years—with the very real potential for even more of an increase. This means that your income will need to mirror, but ideally exceed, these increases to maintain your standard of living. Look for income generation that has flexibility—not just something that will generate a lot right now. It’s important to invest in areas that have promising opportunities for gains.

Do not invest only in growth funds

While investing in growth funds may reap substantial gains, they typically pay very small dividends (if any at all), and pose an above-average risk. It’s important to have a strong income base in other areas of investment, so you can allow the growth assets the burgeoning time they need before selling them.

Do not invest only for short-term satisfaction

It’s important to have an adequate amount of assets that are invested for the short term. However, at the same time, don’t have too many short-term assets or else it will be extremely difficult, if not impossible, to grow your retirement assets while withdrawing.

Do not be forced to sell on market lows

Seasons of market volatility are bound to happen, and it’s important you have a healthy amount of cash reserve and other stable assets. Don’t be a forced seller at market lows in order to pay your bills. By selling low, you're selling your hard earned assets at fire sale prices. With proper retirement income allocation, however, this can be avoided and you can ride out that season and hopefully see those investments bounce back.

Do not go at it alone

Work with a retirement and investment expert who can help you create and maintain a properly diversified portfolio. The investment world is complicated and always changing. Work with a professional who follows market changes and can help you generate an income during retirement while continuing to have your investments and savings grow.


Summary
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Growing your retirement assets while taking withdrawals may not be possible for everybody, but this advice will help. It’s important to understand your specific retirement scenario and balance your unique set of risks and opportunities appropriately over the long term. With planning and proper diversification, growing your assets is possible. The more you plan and take positive action before retirement, the higher your likelihood of success.


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Andrew E. Carrillo CFP®, AWMA®, CRPC®President and CEO, Private Wealth Advisor

Andrew Carrillo is the President and CEO of Barnett Capital Advisors. He began his career at a Fortune 500 company but decided to depart from the firm because he realized how much being an Independent Financial Advisor could benefit his current ...

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