Income Distribution

The significant challenge of an investor in or nearing retirement is to secure the income needed during retirement while still achieving the growth in a portfolio necessary as a hedge against inflation. The volatility of growth investments makes them wholly inappropriate for generating short-term income needs, but growth investments are the most effective way to hedge inflation long term.

Many planners can help individuals to calculate an achievable, long-term retirement income objective. NWCM distinguishes itself from other firms in our ability to also develop and implement the investment strategy that accomplishes both short-term and long-term income needs.

Think of two big "buckets" in which your investments will be placed. One bucket is called your Income Bucket. Fill it up with very safe and high quality assets—bonds, CDs, money market funds, etc.—whose interest payments and maturing principal are equal to the net present value of the income you will need from your portfolio for the next ten years. Distributions from the Income Bucket—guaranteed by the credit quality of the investments—will supplement other sources of income you might expect from Social Security payments, pensions, rental income, etc.

The Income Bucket will ensure that the income you need for the next ten years will be there month in and month out. NWCM will calculate the appropriate amount of assets to place into the Income Bucket given all sources of your income, and we will detail for you the source of every monthly income check you can expect over the next ten years.

Why ten years? Because the rest of your income-producing assets could go into a Growth Bucket for investments in stocks-assuming you have the temperament to tolerate the associated investment risk. NWCM considers ten years a sufficiently long period of time to be adequately paid for the risk posed by investments within the stock market.

Before your Income Bucket would be completely depleted with its ten years of monthly income distributions, it needs to be filled back up with assets from the Growth Bucket-assets that presumably have grown appreciably from the amount first deposited. When the Income Bucket is filled back up—maybe at year three, year five or year eight depending on market conditions—the Income Bucket will have started another ten-year period in which your income is guaranteed. The Growth Bucket will then contain an appropriate amount of assets whose expected, longer-term growth will someday be used again to "top off" the Income Bucket.

The process of systematically depleting the Income Bucket and refilling it periodically from the Growth Bucket significantly increases the likelihood you do not outlive your income. The Income Bucket guarantees your income in the short-term while another part of your portfolio is subject to the volatility of growth investments contained within the Growth Bucket. Remember, investors make money in the stock market, not despite its volatility and risk, but because of it!

The Income Bucket's capacity for ten years of distributions should afford you the luxury of accessing your growth investments during Bull Markets versus being forced to access growth assets during an inopportune market condition.