A retired couple was living primarily on investment income. The wife’s investment strategy was very conservative. She never wanted to take risks with their portfolio and invested most of their assets in Term Deposits. The goal was to accumulate enough money to generate a safe income to supplement their Age Pension.

 

CLIENT SITUATION

Bothered with low bank interest rates and limited income, the woman investigated other income-producing opportunities. She and her husband met with Shaun to help them explore various options.

 

HOW WE HAVE HELPED

Shaun reviewed their portfolio and helped the couple determine overall asset allocation. In addition, they studied past tax returns to determine their marginal tax bracket. Shaun examined the couple’s risk tolerance levels and annual expenses. After thorough analyses, alternative investments were suggested.

Several fixed-income investments were considered, such as government and corporate bonds. Most of these investments should provide a higher interest rate, yet still considered conservative. Shaun recommended different maturities for bonds to help protect the principal if interest rates rise. Only investment-grade bonds were proposed to help reduce the risk of a possible default of the underlying issuer. Shaun shared the pros and cons of individual bonds versus managed funds, which utilise professional management and can provide diversification to help reduce risk.

Shaun also presented additional ways to assist in obtaining a dependable retirement income. One method is a systematic withdrawal from a managed fund. This withdrawal provides a fixed dollar payment amount that can be directly deposited monthly to a nominated personal bank account. Shares of the fund are sold periodically to produce the necessary cash needed to support withdrawals. Dividend income and anticipated appreciation can help sustain the principal on an ongoing basis.

Another concept offered to the couple concerned the total return of an investment. In the past, they had only considered spending the income or dividends from their investment because they did not want to touch the principal. Fortunately, their portfolio had increased in value due to market conditions. Thus, drawing a portion of capital appreciation each year could be another way to gain additional income.

 

THE RESULTS

Shaun helped the couple increase cash flow from their investments without substantially increasing their risk. The additional income enabled them to help maintain their desired lifestyle and still be financially comfortable.

The Moral of the Story: Income can be increased through various investment strategies.