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Your portfolio will be divided into three different TIERs. The three TIERs are designed with distinct time frames and your financial planning goals in mind. Each TIER has a target rate of return that was determined through thorough research, conducted with the goal of providing a realistic approach to retirement income planning.
The first TIER is a laddered bond portfolio consisting of high-quality corporate, government, and government agency bonds. The portfolio is constructed with the goal of providing your required income stream for the first 10 years of your retirement. In order to do this, we calculate the present value of your required income stream, using the stated yield of the bond portfolio as the discount rate. Once we calculate the present value, the portfolio is assembled so that the interest payments and scheduled maturities of your bonds will match your income needs throughout the first ten years of your retirement.
Using high-quality corporate bonds, government and agency bonds, we strive to remove as much risk of default as possible from TIER 1. Assuming each bond is held to maturity, without default, the outcome of your TIER 1 portfolio is predetermined.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor’s yield may differ from the advertised yield.
In TIER 2, the program will calculate the present value of your required income distribution stream beginning in year 11 of your retirement, and continuing for another ten years. In this TIER, the portfolio is made up of investments with a goal of providing both growth and income. The securities utilized in TIER 2 include, but are not limited to, preferred stocks, longer-term investment grade bonds, and or high-yield bonds.
To determine your allocation to TIER 2, we calculate the present value of your income distribution stream for the second 10 years of your retirement, using our target yield as the discount rate. The TIER 2 portion of your portfolio is then afforded a ten year time frame to in order to achieve its stated objective.
At the end of the first 10 years of your retirement, we shift your TIER 2 portfolio to TIER 1, assembling a new bond ladder to match your retirement income needs for the second 10 years of your retirement.
The remainder of your retirement assets is allocated to TIER 3. TIER 3 is an all-equity portfolio designed with the goal of providing long-term growth. For the purposes of the TIER strategy, the long-term is defined as 20 years. This definition is based on the duration of TIERs 1 and 2, since each of the previous TIERs lasts 10 years.
The allocation to the equity component then, by program definition, will have twenty years to achieve its target return. The portfolio is then designed with the goal of growing the equity portion of your retirement portfolio in line with the historical average return of the S&P 500.
Upon the depletion of TIER 2 in year 20 of your retirement, TIER 3 is reallocated to TIER 1, with the goal of providing the necessary income stream for the remainder of your retirement.
For more information or to request a personalized TIER strategy for your retirement, contact us! A phone call or email doesn't cost anything, so why risk missing out on the opportunity to work with us to improve your financial future!
All investing involves risk including loss of principal. No strategy assures success or protects against loss.