Lessons Learned in 2023

Lessons Learned in 2023 – Welcome to the Webinar (0:00)

Scott Peterson: Hello, everybody. I’ll give it just a minute to have the rest of you come on. But, it’s good to be good to be with you today. I’m usually not the one presenting. I have a lot of other advisors that do this so I can see how it is in the real world.

But, I’m Scott Peterson and I’ll be hosting the webinar today. My partner, Jeff Lindsay, will be monitoring the chat feature. So if you have any questions throughout, he’ll be able to answer your questions. And then we’ll be hanging around for maybe 15 minutes or so afterward just to answer any questions that you might have.

So, let me just tell you about what we have planned today. I’m going to just give you a brief review of the recent history of the market and then I’ll share some thoughts about how we think you should consider managing your money during retirement. And then also at the end, I’ll give you some thoughts about investing in 2024. It’s kind of maybe a challenging year, and there’s a lot of things going on.

Anyway, it was our most quoted New York Yankee Hall of Famer, Yogi Berra, who came up with the phrase, it was like deja vu all over again. And I guess, you know, in my mind, that’s what we had. It’s just another cycle of the market that happened this last year.

And so I’m just going to take you again back in time just a bit and share with you kind of well, what happened. I’m going to take you back to when my career began back in 1986. If you don’t mind, I know a lot of you have been investing for a long time, so you’ll recognize some of these market incidents. But, I’m going to take you back, let me see here, let me get my highlighter going here.

Alright, I’m gonna take you back to 1987, 1986. I started my career right here, and within a year or so, we had the black Monday, 1987. If you remember right, what happened then, I mean, I remember thinking maybe I’d rather drive a truck than be in this business because I didn’t have anybody’s, I really was brand new to the business, but I saw the turmoil and the fear people had thinking that we’re starting the great depression once again, that kind of thing.

But you see the markets have been on a tear through the 80’s. And then during a three-month period of time, the markets went down. Well, actually in a day it went down 33%, but it only stayed down for three months. And then we had the 90s, the roaring 90s, where we see the stock market was up 582% during that time periods. At the end of the roaring 90s, then we had the .com bubble burst through these years here. And then 9-11 where the markets were down over that three-year period of time, a two or three-year period of time, about 50%. Markets started doing well again, they were up 100% for a five-year period of time.

And then all of a sudden, we had the financial crisis of ’08 and ’09, where the markets were down about 50%, a little over 50%, and only lasted for a couple of years. And then we had, of course, the big run-up from 2009 until the end of 2021 where the markets were up 400%. And then we had COVID come along. Markets dropped 33% in a month and recovered 33% in a month.

Then the markets went up as you see 114% after that. And then we’ve had our latest little hiccup, whatever we want to call that, where during this last year, during 2022, the markets were down 22%. And during 2023, they bounced back and now they’re up again.

And so I just like to point this out to you. It’s very difficult to time markets and to guess when these events are going to happen. But I also want to point out that these events, these downturns are just a part of the investment cycle. In fact, let me share with you a little bit more about this.

What I’ve done here is I’ve listed all the bear markets since the end of World War 2. And a bear market, again, can be defined as a drop in the stock market of at least 20%. And so here’s all the big bad drops since the end of World War 2. And you see, interestingly, the average drop in the market of a bear market, it’s 30%. So we lose 30%. I think an important thing to point out here is this number down here at the bottom right, 14. That’s how long they last, 14 months on average. And so, we have some really big bad drops in the market, but they only last but a short time, and then we move on and the markets go up again.

Now, fortunately, surely as bear markets will come along in the future and have come along, they’re always followed by a bull market. And so here, I’ve also listed all the big gains in the markets that follow the bear markets over time. You see the average gain of a bull market, you see the bottom, the bottom number there is 133%.

And so this is part of the cycle folks, and that’s what we’ve been through this last couple of years. It’s just, you know, we expect markets will go down, they stay down for a year or two, then they bounce back up. That’s just what they do.

And now, some of you might be thinking, well why do I subject myself to all of this? You know, this craziness. Why do I have to worry about it? Well, it’s because of this number right here that I want to share with you. The annualized gain from 1945 through all these market cycles to today is 11.2%.

And the problem is, if you ignore this and say, I’m just going to stick my money in some place safe that doesn’t have the volatility, then what happens is you’re denying yourself all this growth. And frankly, we have to be invested somehow in stocks with a part of your money just to keep up with the inflation. So that’s why it’s important to know this, but I also want to point out the cyclical nature of this. Like I said, it’s this deja vu. You know, we’ve seen this all before, and I promise we’ll see it again.

So now, you might be interested to know that since the end of World War II, this 11.2% return, the S&P has. If you would’ve put a thousand dollars at the end of World War II into the S&P 500, it would be worth over $2.5 million today.

So the question still remains, how should a retiree manage their money in an environment like this?

You know, we have the ups and the downs and it does get kind of crazy. So as I see it, the retirees have three options, or people retiring have three options. And so I just want to take some time and kind of go through what those options are and what you might want to consider doing.

So the three options are number one, a lot of people are frustrated. They don’t want to deal with any of this stuff, so they just go out and they buy an annuity. Many new retirees look at the complexity of managing their money and the complexity of creating a reliable stream of income during retirement, and they just flat out kind of give up, I think. That’s when they buy the annuity. After all, an annuity will guarantee you a stream of income for the rest of your life.

Now, Peterson Wealth Advisors, we don’t sell annuities. In fact, my advisors know the fastest way to get fired at Peterson Wealth Advisors would be to sell an annuity to one of our clients. In fact, we don’t even allow our advisors to receive commissions or to have licenses to receive commissions. So you’re not going to get an annuity from us.

But, you might be asking, well, why am I so against annuities? Well, there’s a lot of reasons, but I’ll tell you the underlying reason that the income streams that annuities provide will not, and do not keep up with inflation. That’s the problem. Inflation can be deadly if we don’t keep our investments up with the inflation rate. I just want to remind you of when it comes to inflation, inflation is the gradual, but nonetheless, lethal loss of purchasing power.

So $4,000, if you have an income of $4,000 a month today, it will only have $1,600 worth of purchasing power 30 years from now. And that’s just assuming the 3% inflation rate. As you all know, the inflation rate’s been quite a bit higher recently, but historically it’s been hovered around 3%. So unless you’re willing to take about a 60% cut in pay during your retirement, you have to figure out a way to keep up with inflation.

So, the idea, once we retire, we need to keep the magic of compound interest working in your behalf. And the only way that we’re going to keep up with inflation is to invest a portion of your money in equities or in stock-related investments. Now, certainly, not all your retirement funds should be invested in equities, but some of your investments should be dedicated to beating inflation. Then that brings us to our option number two. So, buying annuities is not going to work because we have to keep up with inflation.

Option two, managing the portfolio of your own investments. So I will tell you that the stock market and equities, they’re the right tool, and they’re a powerful tool that will help you to beat inflation. But they have to be, it’d have to be used correctly.

We see all the statistics, all the numbers. In fact, JP Morgan gives us a number that the average investor that invests in stocks, it’s about a 3% rate of return on the average, which is crazy because the stock market over a long period of time averages in the 10% to 11% range. But I think there’s just so many people that aren’t really trained in investing and are very reactionary, especially retirees. They think this is all the money I have, I have to protect it. So the first time the markets go down, they flee the markets and sell when stocks are down, which is not a good thing to do obviously.

So anyway, even though the stock market is your best long-term inflation fighter, it’s also temperamental. It’s unpredictable and even dangerous in the short term. So I think that’s the problem. We’re too emotionally charged as investors, so we don’t do a very good job.

So I find it interesting that the best educated, most experienced investment managers in the country can rarely beat the stock market average. You know, over a long period of time by implementing their market timing, stock picking strategies.

Now, many of you have heard about the investment legend Warren Buffet When anybody talks about investing, they say, well, Warren Buffett says, because he’s a good investor. But I want to point out that his mutual fund he manages, Berkshire Hathaway, has not been able to beat the stock market average for the past 20 years. I tell you this, to help you understand that you are delusional if you think that you have the ability to time the markets and to pick a superior investment mix that could beat the markets over a long period of time. I don’t think you can.

So the best of the best, the most well-funded, best educated, most experienced people can’t do it. I doubt that you’re going to be successful timing markets and so forth.

In saying this, I think some of you I’m sure have done a great job in saving for retirement. You’re disciplined, you didn’t get scared out of markets, and you’ve accumulated a lot of money for retirement, and I commend you, I congratulate you. But I also want to remind you that the distribution of funds over a retirement takes a completely different skill set than does the accumulation of retirement funds. See, when you retire, there’s so many questions that need to be answered. When you start, when you transition from accumulating to decumulating. Is this a different world?

So let me just throw a couple of these questions out to you. You still have to invest properly, right? So how am I going to invest? You know, you need the right mix of short-term less volatile investments, but you also need long-term inflation-beating investments.

Second question, how will I manage my money during market downturns? Well, you have the discipline to do the right thing and to make the right decision. How much money should I withdraw from my investments? How much do I dare withdraw? I mean, you’re going to be retired for a long, long time. You’ve got to figure this out.

And from which investments should I draw my income from? You know, there’s tax considerations to make. You want to pull your money from your Roth IRA or from your traditional 401K or from maybe a non-retirement account.

And then how do I coordinate my Social Security and my pension payments with my investment income for maximum tax savings? How do I manage my Required Minimum Distributions that I’ll have to take? Would a Roth IRA conversion be beneficial to me?

Now, here’s another question. I’ve heard that there are a lot of tax benefits that I could get by making charitable contributions directly from my IRA. Is this true? And how do I do it?

And here’s another one that I think people forget about. This question here I think is very important. Will I be able to manage all these issues throughout my entire retirement on my own? And then who is going to do this for my spouse when I’m gone?

The point I’m trying to drive home today is that investing and properly distributing is challenging, stressful, and it will consume your valuable retirement years and you probably won’t be too successful at it.

So, besides myself at Peterson Wealth Advisors, there’s nine CFP®s. We have a fully staffed operations team that does our trading for us. We have numerous CPA affiliates that we work with and a supporting staff. And it takes all of us to properly manage and know all there is to know and to do to properly manage our client’s money during retirement.

Now, I have 38 years of experience managing money, and I won’t be managing my own investments on my own during retirement. There’s just simply too much to keep track of. There’s tax laws, knowing how to invest, and interest rates. There’s just a lot going on.

This brings us to option number three which is to follow a time-tested retirement income plan. So following a plan is essential, and it’s the only way to maintain investment discipline. And we see very few investors end up retiring with an actual plan.

We believe that working without a plan is dangerous because without a plan, fear and greed will become your greatest influence. And emotionally driven investment decisions will never produce a good outcome. So we all need to develop a retirement income plan.

It was Benjamin Graham, he was a mentor, he’s a famous investor, but he is a mentor of Warren Buffett. He taught us, he said this: “The best way to measure your investing success is not by whether you’re beating the market, but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you need to go.”

I believe that is very true. I think we need to define, first of all, what it is exactly that we need our plan to do for us. And so, I think the goal of our plan should be this. We need it to provide an inflation-adjusted stream of income that lasts through retirement with the least amount of risk. In my mind, a retirement income plan must do four things.

First of all, I think it must be goal-specific. You know, there’s a big difference between a person who says when I retire, I would like to own a cabin at the lake. Versus a second person who says, I want a cabin by the lake when I retire in 20 years. I estimate it’ll cost me a million dollars. Therefore, I’ll need to save $2,164 per month for 20 years and get a 6% return on my investments to accomplish that goal.

Clearly, the first statement was a wish or a dream, I want a cabin by the lake. But the second statement is a plan. And any program that does not offer date and dollar specifics is a wish or a dream, not a plan. So in the world of finance, dreams rarely do come true, but plans usually do, or off times do.

So successful investing isn’t just buying the correct investment, but it also must include a plan as to when to sell that investment as financial goals are achieved. A goal-specific plan defines how much money will be needed, and then when it will be needed.

Second, our plan needs to provide an investment framework to minimize risk in our own situation. We should strive to meet our investment goals by ascertaining all the risks and choosing the least risky path that will help us get to where we need to be.

So before we go any further though, I think we have to answer this one question. What is risk?

Well, we believe that risk is the loss of purchasing power. So in this context, I think the two greatest risks that destroy purchasing power for retirees are first of all, in the short-term, and when I say short-term, I’m referring to maybe less than five years.

I think the biggest risk to your purchasing power in the short term is a market loss. For example, if you have $100,000 invested, the market slows down and it leaves you with $50,000. Well, you’ve lost 50% of your purchasing power. But there’s another risk again, that we have to talk about is the long-term risk, that of inflation. And when I say long-term, I’m saying maybe 10 years plus.

So let’s say you invest your money, but it’s not very aggressive, it’s really safe. So 20 years from now, you still might have that same $100,000 that you started with. But if that $100,000 only purchases 50% of what you can purchase today, you still lost 50% of your purchasing power.

So there’s just these two different risks that we have to be aware of. Short-term market risk, and long-term inflation risk. So I look at it this way, on our timeline, we have risk on the left-hand side, then time on the bottom.

The risk of owning stocks over a long period of time goes down. The risk of inflation over a long period of time goes up. So the way we think about it, we need a plan that will protect our short-term income needs from market volatility, while at the same time protecting our long-term future income needs from inflation. So essentially, we need to create a plan that matches your future income needs with your current investment portfolio.

Let me say number three here, that our retirement plan needs to provide a distribution framework. This helps you to know how much you can and should distribute from your money, from your accounts during retirement.

It’s interesting that in retirement, you’re managing the biggest sum of money that you’ll ever have, but it also has to last a long time. So the question of how much can I or should I withdraw from my investments is very important. This must be figured out if you’re going to have a sustainable income stream throughout retirement and if you’re going to be able to enjoy your retirement experience to the fullest.

It’s interesting, as we work with clients, we see different tendencies. And I’ll say at least when it comes to distribution, I see two tendencies. I see the first group of people which is thankfully in the minority, they feel quite entitled. They’ve been saving for retirement all their lives and they’re retired so they’re going to spend their money on whatever they want. And so they blow through all their retirement money in the first 10 years of a 30-year retirement.

On the other extreme, which I think is more common, we see people who are afraid to spend any money at all. They may have a bunch of money and their account looks very, very healthy. They’ve saved wisely over the years, but they also realize that this has to last a long time. So they’re afraid to do anything. There’s extremes that they won’t go out to dinner. They won’t visit their kids in a neighboring state or things like that. Just because they’re afraid of spending money.

So, a distribution plan will help you to have the knowledge and the discipline to withdraw the appropriate amount of income throughout retirement with a distribution strategy in place you can spend with competence during retirement and understand that you can understand how much money you can and shouldn’t withdraw from your retirement funds.

And last, number four, we need a plan that will help us to coordinate all income sources to reduce our income taxes. Withdrawing money from the right type of account, from an IRA versus a Roth IRA, and so forth in coordination with your Social Security and pensions. Pension benefits at the right time can really enhance your tax efficiency.

Now, there are tax reduction strategies available to retirees that can significantly reduce your tax burden. But these tax savings opportunities just don’t happen by accident.  Distributions must be carefully planned in conjunction with our current tax loss. So the question I guess is how are we going to put together a plan that covers these four objectives?

The Perennial Income Model™ (24:39)

Well, we’ve put together that plan. Let me just introduce you to this or remind you about this. On this webinar, we have existing clients as well as we have people kind of wondering what we even do here.

For existing clients, this is how we manage your money now. This is how we grow it. This is how we provide the income that you need. For those not familiar with the Perennial Income Model, I’m going to introduce it to you now, and it’s a methodology that might just change the way you think about retirement and show you a better way to retire. It might even enable you to retire now when you thought you couldn’t.

So, in 2007, the Perennial Income Model was born. And as you’ll soon see, it’s just a common sense approach to managing investments during retirement. When I say common sense, I mean common sense. Because in our industry, there are so many people who have dedicated their lives to trying to guess the future of the market or to know when to be in and when to be out, and so forth. This does none of that stuff. It’s just a common sense approach where we want to match our clients’ future income with their current investment portfolio.

So instead of explaining it all myself, I’m going to just turn it over to a three-minute kind of commercial or video that explains a little bit about how the Perennial Income Model works.

– Start Video –

Congratulations, you made it to retirement. Retirement’s different now than what it used to be. Like it or not, employer-sponsored pension plans that provided past generations a steady paycheck throughout retirement have been replaced by 401k’s and IRAs.

Now, you are responsible to create your own stream of retirement income. In order to successfully manage your investments, there are a few obstacles to be aware of.

Longevity, as life expectancies continue to rise, you need to plan on creating a stream of income that will last for 30 years. Inflation, assuming only a 3% inflation rate, your dollar today will have just $0.41 of purchasing power in 30 years. Market volatility, the stock market has always had its ups and downs. Expect this to continue.

You might be asking yourself, how do I invest to keep up with inflation? How much should I withdraw annually? How do I keep from making mistakes during volatile markets? It sounds like you need a plan.

Introducing the Perennial Income Model, the plan we created to match your current investments with your future income needs. It’s designed to provide an inflation-adjusted stream of income that will last the rest of your life.

Let me explain how it works. Using a conservative goal-based approach to investing, we separate the money you would use to provide a stream of income into different accounts. Each account is dedicated to providing income for a five-year segment of retirement. Therefore, each of those segments has different objectives.

Segment one provides income for the first five years. So safety of principle is its objective. This should not be subject to a lot of market volatility, so we use conservative investments.

Segment two grows for five years and then provides income for years six through 10, and so on. Keeping up with inflation becomes increasingly more important in the latter segments. So we use stocks and other inflation-beating investments that can meet this goal.

As each segment meets its target, we preserve our gains by moving aggressive investments into more conservative ones. This provides a steady stream of income for future years.

The Perennial Income Model is a common sense approach to investment management that offers peace of mind with the objective to provide a reliable stream of retirement income. It allows you to have confidence during turbulent markets and to focus on what is truly important during this stage of life, enjoying your retirement. Call us to receive your own customized Perennial Income Model. Click here for more.

– End Video –

Scott Peterson: Now, I’d like to introduce you to a family. We’re going to build a time-segmented distribution plan, build a Perennial Income Model for, now this is just a hypothetical family. I don’t know if any of our clients are this handsome as this couple right here, but they’re the people we’re going to build it for.

We’ll just call him Tony Smart and his wife Kathy. Now, Tony we’ll say is a 65-year-old engineer. He and Kathy have been diligently saving for retirement all their lives. Now they’ve come to the time where they’re really truly ready to retire.

And so, let me tell you, over time and together they’ve accumulated a million dollars in their 401k and IRA accounts and they want to know how this million dollars should be invested in the Perennial Income Model, and how much income they could expect to receive from that sum of money.

Now, they’d really like to pass the full million onto their kids if they possibly could. So, please note that I’m going to show you a distribution plan on how to manage and distribute $1 million.

Now, the plan I’m sharing with you today is not just for millionaires. It works with smaller amounts as well as larger amounts of money. I just use a million dollars because it’s easier to follow the example as I explain how this whole thing works. Now, what we’re going to do is we’re going to invest all of the Smarts money, and we’re going to build a 25-year income plan.

Now, we’re going to break their investments up into six different segments, six different accounts. We call them segments, but the first five segments are responsible for providing income for a five-year period of time. And then segment six is dedicated to leaving the original million dollars that they stated that they wanted to leave to their kids.

So, segment one, we’re going to take $220,000 of the million dollars and invest it in segment one. This is a very ultrasafe kind of boring account. You see that we’re only assuming a 1% growth rate here.

Now, will it do better? Should it do better? Well, yeah. In a period period when we get 5% guarantees in our banks, it will do better than this. But let’s just be conservative and show this 1%. So what’s going to happen? We’re going to spend that $220,000 and the Smarts are going to receive $3,774 a month each month for five years.

So, again, it’s very safe, it’s free from this. Money can’t be in equities, it can’t be volatile, it can’t be going up and down because this is where the Smarts will be getting their monthly check from.

So now again, we use a very conservative 1% growth rate. Let me show you all of our growth rates that we use. We’re the only people that I know that manage things this way.

And so we have zero incentive to try to plug in these very unrealistic growth growth rates. And so I just want to make sure you understand that what we’re showing you is a very conservative approach to things.

Here in front of us, I have a study from Vanguard over the years. This is from 1926 to 2021. So this kind of gives us an idea, but I just want to point out that Vanguard, as you look at the top, the capital preservation.

That’s a very conservative portfolio, very like what we’d use in our segment one. Historically, it’s got a 6.9% return. Again, we’re just using the 1%. So here’s the Vanguard historical returns, and then here’s the numbers that we’re plugging into the program.

As you see, we’re really underestimating what we think we’ll get. But the point is, if this Perennial Income Model works at the very low assumed growth rates that we’re showing you, it’s going to work better in real life.

So let me move on to our segment two. So while the money in segment one is being distributed for the first five years, the balance of the million dollars is growing. Now, of this balance, we’re going to take an additional $220,000 and allocate this to segment number two.

Now, segment two will take over the rule of providing monthly income to Tony and Kathy when segment one runs out of money at the end of the fifth year. So this money will not be needed since it won’t be needed for at least five years. We can be a little bit more aggressive on how we invest this money. So you see, it’s in a conservative growth portfolio, and we’re assuming a 3% growth rate. Again, according to Vanguard, the historical return for a conservative growth portfolio is 7.7%. But we’re just still going to stick with that 3%.

So you see built within the system, you see between the fifth and sixth years, the Smarts have a built-in inflation adjustment so they’re going to receive more income. And we build that in automatically every fifth year, the clients will receive more income.

So let’s go to segment three. Segment three is dedicated to providing income for the third five-year segment of retirement, or years 11 through 15. Now, because this money is not necessary to provide income for 10 years, this money can and should be invested just a little bit more aggressively.

It’s in a moderate portfolio, so it means we have about half in stocks and half in bonds. And again, we’re showing just I think a very conservative growth rate of 5%. Historically, this kind of account, a moderate growth account, according to Vanguard, has received about 8.7%. So again, we’re being conservative.

But you see now at 5%, we’re initially putting that, let me get my pointer out here. We’re starting with $181,000 and the idea is to have it grow to be at 5%, $298,000 in preparation for providing income in year number 11. And you see the Smarts every fifth year, again, they take a cost of living adjustment raise.

Okay, segment four. Now we’re in a moderate growth portfolio because we don’t need the money for 15 years. So of the million dollars, we’re going to put $141,000 of the original million here. And the 6% growth rate, we’re going to turn this into $346,000 in 15 years. Again, the Smarts get a little bit of a raise, the cost of living adjustment in the 16th year.

Now, segment five is given $99,622 of the original million dollars, and it has 20 years to grow. So, the target of segment five is to have this money be worth $402,000 in a 20-year period of time. And so, almost all of segment five needs to be invested in equities. Again, in the early segments, we’re worried more about market volatility. In these latter segments, we’re worried more about inflation. So, when I say equities, it’s going to be a diversified portfolio of large US stocks, medium-sized stocks, small stocks, international stocks, and so forth.

This is how it looks, the last segment as you see, we call it our legacy segment. The Smarts mentioned that they wanted to be able to replace or have a million dollars at the end of their lives to be able to pass on to their kids. So if $136,237 of the original million dollars is invested in the legacy segment, again, this has got to be an all-equity segment, we’re assuming an 8% growth rate. And remember, stocks over a long period of time average 10% to 11%. But at 8%, we will turn that $136,000 into a million dollars at the end of 25 years.

A couple of things I just want to point out as we look at this thing, the big picture here is this. I’m harping on this, but I think this is an important point. We use very low, and I think unrealistically low assumed growth rates. Again, we’re not trying to show you the highest numbers in the world. We just want to put together a plan that works. We believe you’ll be able to do better over time than what we’re projecting.

Another thing I want to point out here is this. You would think that we truly are spending all of segment one, that’s providing that monthly income and all of segment two is providing the monthly income.

But look what happens. This is the actual account balance. You see that over the years, the account’s really not going down, staying level. So that’s because as we’re spending segments one, segments two, all the other segments are growing for you.

And then last, I want to point out this here again. We start with a million dollars, we end with a million dollars. But by using this methodology, it spins off more than one and a half million dollars during a lifetime. So this is how it works.

Now, I present this at Education Week. And so this is where I see everybody grab their cameras and take a picture of this thinking okay, here’s their secret sauce, a special formula. This is how I could do it. And I know how to do a spreadsheet. I can do this myself. I’ll just copy this. But there’s so much more to this than the spreadsheet, I promise.

So I just want to warn you about this. You know, a distribution plan, it takes a couple of hours to create. But it takes 25 or 30 years of discipline to successfully implement. So those who create a spreadsheet, invest, and then forget about it or abandon their plan will not have a successful outcome. So when investor discipline fails, the plan fails. The essential step of harvesting a time-segmented program is really where the rubber meets the road. And I’m going to introduce that to you, but it’s not in the creation of the spreadsheet. That’s why we’re so willing to show this to you because the magic isn’t here. The magic is in the harvesting and the managing.

The Importance of Harvesting (40:50)

So let me explain what harvesting is all about. So simply stated, the process of harvesting in financial terms is transferring riskier, more volatile investments into conservative, less volatile investments once the target or a goal of each segment is reached.

So think about a fruit farmer, he toils throughout the year in his orchard, fertilizing, pruning, spraying, and irrigating his trees. All of this work is done because the farmer knows that in the fall, in a very, very short window of time, his trees will produce delicious fruit. Now, he knows that he must harvest the fruit when it’s absolutely ripe and ready to be harvested. Harvesting too early or too late in the season will ruin the fruit.

Now, just because the farmer has to harvest only on a select few days of the year, it doesn’t mean the fruit needs to be eaten then, right? There are many methods that can preserve the fruit once it’s gathered. It can be frozen, bottled, canned, dried to preserve its flavor and nutritional value.

So the means of preserving the fruit is not nearly as important as harvesting at the right time. So now, just as a farmer picks his fruit at the right time so it can be preserved for a future day, retirees should also harvest their investment gains and preserve them once the goals are achieved for each segment.

We believe that unnecessary risk is brought to the time-segmented plan if it’s not properly harvested when the investment has ripened. Or in other words, has grown to its target amount. So I’m gonna go back to the chart here and maybe take you through a scenario.

If I was my own competitor, I’d be looking at the chart saying, hmm, the only thing these guys are doing is they’re getting more aggressive with the investments as a person ages. That doesn’t make any sense at all, right? But that’s not how it happens because of the harvesting process. The success of monitoring and harvesting are imperative to the success of the time segmentation program.

I just want to point out how this harvesting works. Take a look at those green numbers throughout the page. Those are the goals that every segment must meet in order to have sufficient income and in order to be able to spin off sufficient income for the following five years for which they’re responsible.

So I’m going to take you through a harvesting process and show you exactly how that works. So I’m going to pick on segment number five. You see here, we’re assuming a 7% growth rate. We’re putting $99,000 in that, and we’re letting it grow for 20 years. So at 7%, we’re going to grow this to $402,000 in the 20th year, and then it’ll be ready to spin off income for years 21 through 25.

So, with all the peaks in the values, it’s going to be mostly in equities. But with all the peaks in the values of the stock market, the growth portfolios managed to get more like a 10% rate of return. And again, we’re illustrating 7%. But what would happen if we were to get a 9% rate of return versus the illustrated 7%, which is very realistic, and actually 9% is less than the average for a growth portfolio over the years.

What would happen is we would end up, let me get my pointer out here. So what would happen, if it got a 9% rate of return versus the projected 7%, in 16 years and two months, we would hit the goal of $402,000. We suggest to our clients whenever we hit that goal that we take risks off the table and we turn this column of investments into something more conservative.

Again, we’re starting now with an almost entirely 100% stock portfolio. And once we hit our numbers, if the markets are good to us early, then we hit that $402,000, then we recommend taking risk off the table. So I hope that helps you understand the harvesting process.

The question I do have for you, how important do you think harvesting was to our clients during these past 10 years? Let me remind you what happened. We had this big, big run-up in the stock market. The markets were way ahead of schedule as far as we’re concerned.

In 2021 and 2020, we were able to move a lot of our clients’ money out of equities because they’d met their goals and basically harvested the gains, and locked them into more conservative investments. Then we had the big correction come on this last year. So anyway, the program works if we just follow the program and harvest as needed.

So the bottom line is harvesting adds order and discipline to the investment process, which results in better investment returns, lower risk, and less selling based upon emotion. So you’re selling your stocks once you reach goals, not selling them once because you’re nervous and you want to get out of them.

So in real life, what we do with the Perennial Income Model, we plug in Social Security and pension benefit numbers into the equation which really provides a great projection on what your retirement income would look like. It also ends up being a valuable tool that we use to help minimize taxes during retirement. You can reach out to us, let us plug your pension, your Social Security, and your investment numbers into the Perennial Income Model to show you what a retirement plan can look like.

So, the question is, why doesn’t everybody do it this way? Many of you might be thinking, well, this is just a common sense approach to investing, and it is. I’ve thought a lot about it. Why doesn’t everybody do it this way?

Well, I’ll tell you, it’s more difficult to do. It’s more difficult to manage. We’re watching every segment. The returns we’re harvesting at the right time and so forth, so a little bit harder to manage, I think that’s one of the reasons. And you have to put in the infrastructure to do so.

We’ve also had computer programs developed to help us monitor, to harvest at the proper time. It’ll be very difficult, frankly, to try to do this on your own and to watch over every segment to harvest properly. But I think that’s why most other advisors don’t do this.

The other reason they don’t do this is when you turn on the financial news network, you listen to any podcast, webcast, you know, there’s so many people in our industry who believe that financial management is trying to beat the market. Guessing when to be in, guessing when to be out. The academic world’s already refuted the claim to be able to do so over long periods of time. But the point is, you don’t need a plan like this if you think that you know what the future is. You’ll just get in at the right time and get out at the right time and so forth.

But a plan like this is only for those that are intellectually honest enough to recognize that the market timing and beating the market through superior investment selection, all those things are illusions. That’s why everybody doesn’t do it this way. If you know what the markets are going to do tomorrow, again, which we don’t. You don’t need to plan like this.

So, a time-segmented approach to investing, or the Perennial Income Model, is designed for people who don’t know what the stock market will do next because we don’t know. We just don’t know.

What should you do now? (49:23)

So, my question for you now, just to kind of wrap this thing up, what should you be doing now? Well, if you’re not a client and now that you’ve seen how the Perennial Income Model model works, what should you be doing?

Well, I would suggest number one, go to our website, Petersonwealth.com, and get a copy of our free book, Plan on Living, which explains the Perennial Income Model in greater detail. It’s free, just catch up to us. You can ask for it online and we’ll send it right out to you. So that’s the first thing.

Second thing, if you have yet to retire, I’d say get to know your pension plan and your Social Security benefits, and maybe consider ways to enhance your income from these sources.

Third, I would suggest to contact us. This is free, to plug your Social Security, pension benefits, and your investment values into the Perennial Income Model. Let us show you how good your retirement could be.

Number four, I would suggest matching your current investments with your future income needs. That might be the money in your 401k. Maybe consider how much money you think you’ll need in the early years of retirement versus later. And then match it with your future income needs.

And I’d say, if you think you’re going to need the money in zero to five years, your money should be primarily invested into fixed income, short-term bonds, CDs, money markets, accounts, that kind of thing.

If you think you’ll need the money in between six and 10 years, maybe an equal mix of equities versus fixed income. And then 10 years and beyond, you should probably be invested in a very diversified portfolio of equities and keep it a hundred percent stock. So this is something you can consider now, and if you need help with that, just let us know. We’ll give you some guidance on that.

And then last, stay in touch. Let us be a resource to you as you prepare for retirement. Again, distributing retirement assets is more challenging than the accumulation of assets was during your working career. And I might add, it’s less forgiving.

So oftentimes, the advisor that helped you accumulate for retirement isn’t adept when it comes to helping you manage the retirement distribution phase. So you need a professional to help you develop and stick with a retirement income plan. Many of you will have Social Security questions, pension questions, investment questions, and tax questions before you retire. Again, I’m just offering our services, let us be a resource to you.

Now for just the clients that are watching this, our existing clients, my recommendation is, well, the plan works. I think this cycle that we’ve been through, the down market, now it’s come back up again. You know, you’ve had the steady income, you weren’t selling stocks at a loss. So stick with the Perennial Income Model, have faith in the plan. This was born in 2007. It was immediately tested right out of the gates, ’08 and ’09. We’ve had now three corrections since we started this. And the plan works this, just have confidence in it and stick with it.

There’s hundreds, many hundreds, I think we have 600 clients across America that have adopted the Perennial Income Model. And so we know what we’re doing. And again, this works out, But also, reach out to your advisors with any questions that you might have. And also, I’d recommend that if you have friends or family that are, they’re considering retiring, get them on our website. Let’s get a book for them. We could let them know how this whole thing works.

Now, I just want to end at this part right here and tell you the Perennial Income Model, again, time segmented. We kind of divide things up as you’ll need the money over your retirement. But it provides peace of mind. In 2007 and 2008, again, it was immediately tested. It was born in 2007. And I should say in 2008 and 2009 when the markets went down so dramatically, it was tested and we had the opportunity to only get about half of our clients converted over to the Perennial Income Model.

The half that were converted did so much better. And I wouldn’t say investment-wise, but they did so much better behavioral-wise. They didn’t make the big mistakes because they could see how their money was allocated and when it would be used at a future date. After that experience, we decided that the only way we were going to manage money for our clients was through the Perennial Income Model.

So in summary, today’s markets are cyclical and will continue to be. Equities will beat inflation over time, but you have to know what you’re doing with them. It’s difficult to have a successful retirement without following the plan.

And then the last thing, our recommendation, you must match your current investments with your future income needs. So normally I’d say, well, this is a wrap. But given its election year, I want to just address one thing because we get a lot of questions on elections.

Emotional Investing: Politics (54:58)

How should I be investing during an election year? We have noticed, and I’ve been doing this for a long time, that we often make emotionally charged decisions based upon our politics. And we work with very conservative clients, as well as we have a lot of liberal clients that are spread throughout the country. So it’s interesting to watch those whose party is out of favor, that they think that the end of the world is imminent.

Now, I’m just telling you, we can’t let our feelings about the current resident of the White House influence our investment decisions. And let me share with you a couple of examples that just drive this home, and then we’ll conclude.

Invesco Dynamic Energy, XLE, is an exchange-traded fund, and it holds 25 different oil and gas company stocks. So I think it’s very representative of the overall petroleum industry.

Well, which president was the most oil and gas-friendly in our history? Well, I would agree, you’re probably thinking it’s President Trump. Actually under President Trump, the United States became the largest producer of oil in the world, and we became energy independent.

Who was the unfriendliest president when it comes to the petroleum industry? Well, I agree with you what you’re thinking. It’s probably President Biden. He’s declared a war on the oil industry. It’s interesting to know that during the Trump presidency, XLE, now what you’d think that XLE, this oil and gas exchange-traded fund would do very well. But during the Trump presidency, XLE went down almost 37% during his four years.

During the first three years of Biden’s presidency, XLE has surged 150%. So it happened exactly opposite from what you think it would do. Now, it swings both ways. Let me give you another example. Here’s Trump’s presidency down 37%. And then up, and then Biden’s is up 156%. Now it goes the other way too.

Which president is the most environmentally conscious? I think you’re probably thinking, well, probably Joe Biden. With his Green Energy Initiatives, he’s diverted billions of our tax dollars toward green energy.

So this solar energy, or the symbol on this is TAN. It holds 51 different stocks that are all associated with the solar energy. Now, TAN during Trump’s presidency was up 538%. And during Biden’s presidency, then it was down 53% for the first three years. Excuse me, we have to update those numbers, but it’s down actually 53%.

So the point I’m trying to make is this happens all the time. We think, the markets are going to go one way because of who’s in the office, and it doesn’t happen the way we think. So just be careful. Every successful investor I’ve ever known was acting continuously on a plan, and every failed investor we’ve ever known was acting continually by following current events.

I guess the point I’m trying to make, if you want to sleep better at night, divorce current events and your politics from your investments.

Question and Answer (58:23)

So let’s go with a question and answer period. Let’s take about 10 or 15 minutes. Jeff, do we have any questions that we should address?

Jeff Lindsay: Sure, yeah. I’ve been answering some of these, but it’d be interesting to get your take on some of these as well. There’s a question about the inflation rate. What inflation rate do we kind of use, just in general? And why? Why do we use what we use?

Scott Peterson: Got it. You know, in the Perennial Income Model, correct me, Jeff, if I’m wrong. I think we use a 2.6% inflation rate within that.

Jeff Lindsay: 2.4%.

Scott Peterson: 2.4%, okay. So we used a 2.4%. Now you think, well, inflation’s been sky high, it was 8% last year or something, something crazy thing like that. Probably 5% this year, I don’t know exactly what it is. But the point is, over a long period of time, 3% is kind of the average inflation rate because there’s going to be periods of high inflation like now.

But also remember over the last 10 years prior to this last year or two, inflation was running about 1%. And so it does average out. So we used a 3% inflation rate. I see people driving themselves crazy when they start plugging in 8% inflation rates into their calculations, inflation’s not gonna run at 8% forever. In fact, it’s come down from that. So hopefully that answers your question on inflation.

Jeff Lindsay: So then another question about the Perennial Income Model. When is the best time to start into the income model? Thinking about kind of the end of your career, the market might go down right at the end. What would be the kind of the best time to start?

Scott Peterson: So we’re a little crazy, I would say because sometimes we talk to people and make recommendations inside their 401k. So we’re not actually managing their money, we’re just kind of giving them some direction prior to retirement.

But usually, unless you feel very uncomfortable with your own decision-making, usually we tell people to keep your money in your own 401k plan, but then you kind of match up within your 401k, the Perennial Income Model. So you could have part of your money in your 401k in a very conservative bond portfolio. Part of your money, probably the bulk of your money should be in more equity-related kind of things.

But the Perennial Income Model is built for income. So if you’re not taking income right now, I would suggest you don’t do the Perennial Income Model until you do need income.

Jeff, if you want to chime in on any of this too, Jeff’s my partner and my right hand, and actually was one of the developers of the Perennial Income Model. So he’s not just a pretty face, certainly, right? So if you have any recommendations, Jeff, please jump in.

Jeff Lindsay: So, the only other thing I’d add to that is with the last few years of retirement and thinking about how we operate and how we think about things, it might make sense to get a little bit more conservative with some of your investments, knowing that you might need to use those investments in the first five years of your retirement, right?

So there’s a little bit of kind of nuance to that, but yeah, for the most part, until you need income, usually people don’t set up the overall income model.

Scott Peterson: I’ll tell you this too, is the Perennial Income Model, when it’s all said and done, you’ve seen how we have stocks and bonds or a place for conservative investments. We find when we put this together for people, it usually works out to be about a 60% stock, 40% bond portfolio, kind of in that range. Like 50/50, 60/40, someplace in there. So if you’re a year or two away from retirement and you’re a hundred percent stock, now that markets are up, you might want to maybe take some risk off the table and be a little bit more conservative with part of your money.

On the inverse, if you’re a hundred percent in bonds because you’re retiring in the next year or so, you should have some money in stocks too, right? But usually, by the time people come to us, if they have about a 50/50 mix or maybe a 60/40 stock, 40% bond portfolio, that’s about the right mix.

Jeff Lindsay: So there were a couple of questions about modification of the plan. You showed one version of this for the Smart family. The questions are kind of around, well, what if I’m 75 or 80 when I retire and I don’t need 25 or 30 years of income? Or what if I’ve got Social Security that I’m planning on taking later in retirement or pensions later in retirement? Is it okay to modify the plan?

Scott Peterson: Yeah, in fact, I guarantee it. With what I showed you today, we didn’t even plug in Social Security numbers, pension numbers. We have some people that they retire and they have sufficient income from Social Security and pensions. They hardly need money out of their plan. Other people are very dependent upon it.

So yes, it’s modified. We look at this as not set in cement, it is suggested all the time. But what it is, it’s a kind of a living document that helps us to know how to manage money during retirement. And so there’s always adjustments to this. And I’ll tell you this too, I mean, it’s obsolete on day one, right? Because the markets aren’t going to do exactly what we’re projecting.

And so as time goes on, we have clients take more or less out of their plan, the investments do better than what we’re projecting. And so we have to adjust the plan. So this is just a guideline, and that’s why I’d recommend if you have any questions about us, let us run the numbers for you in your own situation. And you’ll see there’s a lot of modifications, a lot of things we can do with this.

Jeff Lindsay: There was a question about, does the model take into account taxes?

Scott Peterson: In the last chapter of the book, we wrote specifically about how to use the model as a tax guide. So the model itself that we showed you today does not take into consideration taxes, but let me just ask this question for whoever asked.

How would you know whether you should do a Roth conversion or not without projecting your income over a 25 or 30-year period of time? So, I mean, it’s a great tax planner. It helps us to kind of know how to recommend courses of action.

So the model that I showed you today doesn’t, but tax planning is just a central part, a very integral part of what we do here. And we do our tax planning based upon the Perennial Income Model.

Jeff Lindsay: Let’s see, there was a question about kind of our take on 2023, some things that we’ve learned there. I know that was kind of part of the expected presentation here. So do you want to give some thoughts on what we learned in 2023?

Scott Peterson: Yeah, well I’ll say the drop in the market in 2022 was pretty aggressive. But the rebound was equally aggressive. And we see this oftentimes with these market gyrations where markets go down, markets come up. And I think I showed that slide earlier on that I think the most important thing to remember is market downturns are very temporary. They last, on the average since World War II was what, 14 months I believe.

For those of us that do this every day, we think, okay, the markets are down. There’s some things we can do tax-wise. We can make some different moves here and there. We wait for it to come back up, And it always has. It’s never failed to not come up. And so I don’t think we learned anything new except it was, again, reiterated in our minds. Things are temporary when they go down, and these things are cyclical, and that’s just how it is.

Jeff Lindsay: There was a question on your opinion on gold and silver.

Scott Peterson: I think in the book, and if you want to have some additional information, reach out to us. But gold is never, we always hear on the advertisements on TV, it’s a great inflation fighter. It’s not. It’s barely beating inflation because of the recent surge in gold over a long period of time.

And so if you want to have gold and silver strictly as an insurance policy, that’s fine. But I don’t view it as an inflation-beating investment. Jeff, do you have anything to add to that?

Jeff Lindsay: Yeah, I mean, it’s interesting when you think about we like the stock market because these are companies that are out there doing something, putting something out into the world. You get a dividend, you expect the growth of the company, all those kinds of things. And gold and silver is something that’s pretty and we hope it goes up in value.

You think about the big rage lately has been crypto, right? So you buy crypto, so you can hopefully sell it for a higher price. And I think that gold and silver are very similar actually in that way.

Scott Peterson: Yeah, it is. Gold and silver never pay a dividend. When I invest money, I’ll give you an example. I go to Costco like many of you, and I see people, their carts loaded with very expensive stuff halfway to the back of the store.

I’m thinking, that’s the company I want. I want to own this company versus a chunk of metal because I know Costco makes a lot of money on all of us.

Jeff Lindsay: What’s our timeframe, Scott?

Scott Peterson: I’ll give maybe a couple more questions.

Jeff Lindsay: There was a question based on just kind of what we know with our clients, what percentage of our clients are meeting their targeted income or the PIM goals that we’ve kind of put out there? It’s a good question.

Scott Peterson: Yeah, that is a good question. You know what I would say, because we use such conservative growth assumptions, I think our clients over time, they meet them. And so we really don’t run into problems.

Jeff Lindsay: And obviously, that conservative kind of approach is good. I’d say when goals are not met, it’s actually more often because something else happened in a client’s life. They decided to buy something or they decided to live on more than they expected.

And these kinds of things that kind of mess up the plan. The market is always volatile and always does kind of crazy things in any given year. But over a long period of time, it doesn’t surprise you very much.

Scott Peterson: Yeah, you’re right. Over a long period of time, it doesn’t. So, I think that’s a point well taken. The investments don’t get messed up. The clients sometimes will do things differently than what we projected. But then again, that’s the beauty of the plan.

We can make adjustments within the plan when that happens. Because life does happen. You know, people get sick and die or people buy things that they weren’t expecting to buy or have expenses, and so forth. And so the Perennial Income Model is very adaptive.

Jeff Lindsay: Yeah, if you had a plan that’s not flexible, that’s not realistic to real life.

There’s a question about, Scott, what do you think about the infinite banking model, like bank on yourself using life insurance?

Scott Peterson: This answer will take 2 to 3 minutes, but I think it’s worth it. So, early in my career, I’m talking 1986, 1987. You could buy a life insurance policy. You could buy a $50,000 life insurance policy. You could put a million dollars into the policy, call it a life insurance policy for the IRS, and then you could borrow money out at one-half of a 1% return. And meanwhile, the money in the policy would be in the policy/investment portfolios also.

So you could put your money into stocks and then get the money out at half a percent rate return, I mean, half a percent loan rate and completely bypass the IRS. Well, I remember seeing an ad from Merrill Lynch, taking out full-page ads about this wonderful tax dodge. You call your investments life insurance and then you don’t have to pay the IRS anything. Well, that didn’t last very long as you can imagine. The IRS jumped into that, changed the tax laws.

Now you can still do the same thing except you have to buy a certain amount of life insurance for every dollar that you put in the plan. So basically, it made it a much more expensive thing. So you couldn’t just buy $50,000 anymore and put a hundred million into it. You had to buy $5 million worth of life insurance to put a million into it. Well, that really destroyed that wonderful tax dodge back in the 80’s.

But there’s still people that promote that. You can get your money out tax-free and all this stuff as long as you buy enough insurance. But what happens, you have to buy so much insurance that really detracts from the investment gains. So you’re never going to earn enough money to make this a viable investment because you have to buy so much insurance. I hope that makes sense to people.

Jeff Lindsay: Great, I think those are most of the main questions. Hopefully, I didn’t miss any of them. I had quite a few come through that I was able to answer as they came in as well.

Scott Peterson: Well, I’ll tell you what. Let’s just end right now, but I will tell you if you have any questions or you know, specific questions or you’d like us to run a Perennial Income Model for you, please reach out to us. Just email us or get on our website. And again, please order the book if you haven’t received that yet, I think that would be very informative to you.

Anyway, I thank all of you for participating today and for our existing clients. Hopefully, that was a good review for those who are not yet clients and wanting to know how this worked I hope that explains the Perennial Income Model and we covered things which are important to your own retirement.

So thank you very much everybody, and have a wonderful day.

How does the Perennial Income Model™ Offer You Protection?

The Perennial Income Model™ for Retirement: Welcome to the Webinar (0:00)

Scott Peterson: Well welcome, my name is Scott Peterson. I’m the managing partner of Peterson Wealth Advisors. It’s good to have all of you with us today. We appreciate the time that you’re willing to spend with us today.

I know we have a mixture of existing clients who are familiar with the Perennial Income Model™ as well as some non-clients that are wondering what this presentation is all about.

I can promise both the client as well as the non-client that you’ll all benefit from this presentation. Clients will be reminded of how their money is being invested and how the income is actually being created to support them in retirement.

And our non-clients will be introduced to a unique program, our proprietary retirement income plan we call the Perennial Income Model. It could possibly change the way you look at retirement and it’s a plan which could really enhance your retirement experience.

This webinar has been advertised as how the Perennial Income Model can protect you in the down market. It should have been advertised “How Does the Perennial Income Model Offer you Protection?” I wish to apologize to those who are attending this webinar thinking that we can show you how to never lose money in a down market.

To be clear, we’re not suggesting that your investments will be less susceptible to market fluctuations than if they weren’t in the PIM (Perennial Income Model). Okay, that’s not the kind of claim that we or anybody else can make, nevertheless the Perennial Income Model still offers a lot of protection in a lot of different ways and we’ll share those with you today.

The Perennial Income Model provides investing guidelines, distribution guidelines, and guidelines to assist in reducing taxes throughout retirement. That’s the kind of protection that we’ll be talking about.

So we also advertised this webinar to be hosted by Jeff Lindsay and myself. And as Jeff and I talked we thought it’d be a lot more interesting if we had more participants, so we’ve decided to have some of our colleagues join us in hopes that’ll make it a little bit more exciting.

We have a great team of advisors here and I want you to get to know all of them. So Jeff and I will be the only advisors on the Q&A at the end of the webinar.

A Plan for a Successful Retirement (3:10)

Okay, so retirees need to have a financial plan to follow in order to have a successful retirement. I really believe that this is true. We recognize that most retirees are going through retirement without having any type of formal plan at all. There’s no plan to create and maintain their retirement income.

Working without a plan is dangerous. And without a plan, fear and greed become our greatest influence. And emotionally driven investment decisions will never produce a good outcome. So you need a plan that is designed to address your family’s specific needs.

But before we go any further, I want to talk about what a plan isn’t – a product – because there’s a lot of that out there these days. And buying a product is not a substitute for a plan, okay.

Annuities: An expensive substitute for a retirement plan

Many of you’ve been hit up about buying annuities. We find annuities are a very expensive substitute for having a plan. They never keep up with inflation, they lock your money up for years, and they pay some of the highest commissions in the investment world.

The second thing that we find is a rule of thumb guidelines that are out there. Rule of thumb guidelines lacks specifics and may not address your individual income needs.

Retirement Rules-of-thumb: May not be the answer

There are unfortunately a lot of rule-of-thumb ideas that have been passed around for generations and are still with us today. Let me show a couple of them out there because I’m sure many of you have been exposed to this.

60/40 Rule: We have the 60/40 rule that you know if you put 60% of your money in stocks and 40% in bonds, well then you should be okay for retirement. Okay, well the 60/40 rule lacks specifics.

As far as when you should pull money out of stocks, when you should pull money out of bonds, how you should create your income. None of that’s available with the rule of thumb 60/40.

Withdraw 4%: We also have the rule of thumb withdrawal 4% per year guideline. Now it might work if you’re properly invested. Again, we’re lacking the specifics, you know, if all your money is sitting in an account that’s earning 3% and you’re pulling 4% out, well it’s obvious that you’re just going to lose money over your retirement and certainly not keep up with inflation.

Monte Carlo simulations: Another one of my favorite pet peeves is that of Monte Carlo simulations. So this is when you sit down with an advisor who says, well historically if you would have invested x amount of money this way and withdrawn x amount of money, you would have been successful x amount of the time, you know, 79% of the time.

Again, there’s no specifics, and it’s always looking in the past. If you would have done this, this is what it would have generated.

You know, you wouldn’t drive your car around town by looking exclusively through the rearview mirror. Why would you want to manage your investments that same way?

And then the last one that’s kind of more popular. It’s more accurate, but it’s kind of a scary way to live life, is using a guardrails suggestions.

Guardrails: a suggestion that you tie your withdrawal amounts from your retirement funds to the movement of the stock market Now, I can’t imagine basing my spending decisions throughout my retirement on the movements of the stock market.

And I can’t think of a worse way to spend retirement than feeling the need to watch the day-to-day movements of the stock market again to determine how much money I can spend.

I guess the point I’m trying to make is that the investment industry has not given the retiree any real good options when it comes to creating a stream of income to last throughout retirement.

The Perennial Income Model (6:53)

The Perennial Income Model, it’s not a product. It’s not a rule-of-thumb to follow and it certainly won’t require you to monitor every movement of the stock market.

It’s a methodology to follow that has been successfully designed to provide each of our clients with a tailor-made framework to follow to create the most reliable stream of inflation-adjusted income that’s designed to last throughout retirement.

The Perennial Income Model was born in 2007 and now provides income to hundreds of retired families across the United States. In the 16 years since its birth, this methodology has been tested and refined, and we think it should be the default method for generating income from almost all retirees.

So if you’re new to our webinars and have not had a chance to pick up your book, pick up our book Plan on Living. I want to direct you to our website when this webinar is over to get your complimentary copy. Therein you’ll find a more detailed description of the Perennial Income Model.

But for now, let me just give you a short history how the PIM came to be, which will in turn help you to understand how it works. Then we’ll demonstrate how the, excuse me, I keep using the word PIM, the Perennial Income Model helps us to protect our clients.

Okay, so I’ll give you a short history how this all happened. So prior to 2007, I was really frustrated with the whole investment process. I was managing money for a lot of retired families and they all depended upon me, and I recognized that the investment process was broken, this didn’t work.

So prior to 2007, I felt like I was expected to do the research and follow the right economists of which there’s thousands. Then accurately guess the future and invest my clients into the best investments and get them out of the markets at the right time.

Well, that’s a pretty impossible task. So after all, how do you successfully guess and invest in the future when unforeseen events such as pandemics and terrorist incidents get in the way?

Well, the simple answer is that you don’t. Investing by attempting to guess the future didn’t work out well in 2007 and I could tell you it doesn’t work out very well into 2023 either.

So I understood back then that the retiree had to have safe money to draw income from when the stock market dropped. But they also needed to be invested in stock-related investments, or in other words in equities, if they were going to keep up with inflation.

So it was a delicate balance. How do you strike that balance without having a well thought out plan? And as I looked around in 2007, no plan existed.

About this time, I came across a paper from a Nobel Prize-winning economist, William Sharp. He’s a Stanford guy, and in his paper, he introduced the concept of time segmented investing to provide retirement income.

So what he suggested that when a person retires, the retiree’s investment funds should be divided into 30 separate accounts. Each of these 30 accounts would then be responsible for providing income for a one-year period of time, each one year of a projected 30-year retirement.

So there’d be an account dedicated to providing income in year number one of retirement, a separate account dedicated to providing income of year number two of retirement, so on until 30 years’ worth of retirement would be covered.

So the value of such an approach of investing, it was obvious to me, you know money set aside to provide income in the first year retirement needed to be invested much differently than the money that you won’t need for 30 years.

So in my opinion, his relatively simple and straightforward academic approach to investment management for retirees beat all the market timing and future guessing of the markets methods that were used by myself and other advisors at that time.

Okay, so the money set aside in an account to provide income during the first year of retirement had to be absolutely safe and absolutely stable. That’s where you’re getting your monthly check from right?

So this money and year number one of retirement can be subject to market fluctuations. Neither fighting inflation or getting a large investment return is a concern of account number one, simply because of the shortness of its duration.

Safety and stability are paramount. First-year money should be held in ultra-conservative investments that are not subject to a lot of market volatility.

Now on the other end of the spectrum is the money that is designed to provide income during the 30th year of retirement. The objective of this account is to keep up with the erosion of purchasing due to the power due to inflation.

So the dollars within this account would have to be invested in inflation-fighting equities. Short-term volatility is expected but irrelevant in this account. This money won’t be needed for three decades. And speaking collectively, equities have never lost value and have always beaten inflation over time.

So the 30 separate accounts would be therefore started and being very conservatively invested and then they would get progressively more aggressive as the need for income from these accounts is pushed out over 20 and 30 years.

So by following this program of investing, the retiree’s short-term risk of markets volatility is dissolved and the long-term threat of inflation is managed.

Now as much as I like Dr. Sharp’s concept in theory, it wasn’t practical to implement. I certainly don’t want to create and manage 30 separate accounts for each of my clients. And my clients certainly didn’t want to have the mailman bring 30 separate statements in the mail as they watch their 30 separate accounts either.

So the hassle and the expense of this endeavor rendered this academically solid idea of time-segmenting retirement funds nearly impossible.

Okay, so not long after reading Sharp’s paper, I visited one of those Christmas tree farms where you cut down your own tree. Now at the tree farm, I walked by the saplings, I was with my children at the time, walked by the saplings, then the two-foot-tall trees and the various progressively larger pine trees until I arrived at the group of trees that had been prepared for people to harvest that year.

The smaller pine trees and their various stages of growth were there to provide future income for the Christmas tree farm. The Christmas tree farm had planned years in advance for his future income needs, and I thought at that time that the process of segmenting today’s investments to match future income needs is very similar to how this Christmas tree farm operates.

The farm had implemented a time-segmented approach of its own. And I remember thinking that day if the Christmas tree farm can figure this out, I should be able to do the same. There must be a way to transform the concept of time segmenting into a practical model of investment management.

So we went to work. And as I thought about this, I realized that all I really needed to do is to adjust the length of time for each account. If I change the time each account had to provide income, or from one year to five years.

So you see managing six accounts that provided income for a five-year segment of time versus the original one-year time frame was workable and followed the original objective that Sharp expressed.

So I therefore ended up with the accounts that covered the first five years of retirement. And a second account that covered years six through 10, and a third account that covered years 11 through 15, and so forth until we built this out over 30 years.

We call these five-year periods in our office, we call them segments. So once all the wrinkles of transitioning and academic idea into a workable methodology were ironed out, we launched our trademarked version of time segmentation, which we call the Perennial Income Model, or the PIM as I’ve been referring to.

So, let me share with you the Perennial Income Model again. This will be new to some of you but this is nice to go through it very quickly. And again, get our book, it will get into more details.

So here’s how it works out. You see that in the top right-hand corner, we’re starting with a million dollars. And in the bottom right hand, you see where the objective is to end with a million dollars, okay.

Retirement Income Planning: chart showing different retirement "buckets."

Also, this is just a 25-year period of time that we’re dealing with this for the sake of time and space, but anyway. So we’re going to divide the investment, the million-dollar investment portfolio into five different segments.

Each segment again is responsible for creating a five-year period of retirement. So segment one again, the first five years, segment two years six through 10, and so forth. Then we have a sixth segment that we call our Legacy segment.

The job of the Legacy segment is to basically start with, in this case, $136,000 as you see in that second to the, anyway on the right-hand side, not the second to the farthest right, that’s the Legacy segment.

Starting with $136,000 the objective through the miracle of compound interest is to have that grow to the original million dollars that we started with. Okay, so this is how it works.

I want you to notice a couple things though. Number one, we had to assume some kind of an interest rate. And you see we’re assuming very conservative interest rates.

Can you do better? I would hope so, we certainly do. But what good would be realized by using inflated numbers? You would only deceive yourself into taking higher income, but in the end, you’ll probably be disappointed.

So history tells us that these assumptions are very attainable. So if you disagree you can always choose more conservative assumptions in your own plan. But the idea is we want to underpromise and overperform.

And if you take a look at that, you know segment one, we’re showing a 1% interest rate. Well, we can get 4% in CDs right now. So obviously we can do better there. But I guess that the point I just want to make you understand is that we’re using very conservative assumptions.

Because we’re the only people that do this it’s not like I’m competing with the guy down the street, because I’m not, okay. So we just assume very conservative assumptions.

So number two, inflation-adjusted income stream. I want you to notice how this thing is built. Every five years you get a raise, okay, so an attempt to keep you up with inflation.

Okay, the total value column. You would think again that you’re in segment one, again we’re going to spend all of segment one which provides that income of $3,774. Okay, but that segment’s gone after five years.

Then you think segment two, we move on to that, where we start with $220,000. We’re going to have that grow just $256,000 and then we spend all of that in the second five-year period of time.

So you would think that the account value is going down, but in reality, as you can see, the account value, the total account value stays pretty stable because as we’re spending segment one and spending segment two, the other segments are growing for you.

And then its total distributions. Look at your total inflation-adjusted distribution during the 35 years. Okay, you see during the 20, yeah 30 years, I should say 25 years, excuse me.

You see you have $1,563,000 that has been distributed, and you still have the million dollars that you started with. That’s the objective.

Now people are going to ask, well can I pull more money out of this model? Well yes, certainly you would just leave less in the Legacy bucket.

So let’s transition over to the, let’s clean this up a little bit. I just want to tell you that when I teach education week every year, and when I show this slide at education week, this is when all the phones come out and the cameras come out, and they start taking pictures.

Retirement Income Planning - spreadsheet

And I feel like sometimes, they think that well, here’s a secret formula all I have to do is get this and I could create this on my own spreadsheet at home.

Okay, I got that, but I want to warn you of something, that there is more to this than the spreadsheet. As I show you this, I feel somewhat like the negligent adult that hands the keys to a new sports car to a 16-year-old boy and says here, here it is, this is all you need.

So I just want to warn you even though you may be very adept at creating spreadsheets or you’re able to put together a plan following the pattern exactly that I’ve provided, please don’t think that you’re done. I would say quite to the contrary, you’ve just begun.

You see a time-segmented distribution plan takes a couple of hours maybe to create and it takes 30 years of discipline to successfully implement.

Those who create a spreadsheet invest and then forget about their investments or abandon the plan will not have a successful outcome. Okay, when investor discipline fails the plan will fail.

So the essential step of harvesting a time-segmented program is really where the rubber meets the road, not in the creation of the spreadsheet. So I feel obligated to kind of explain what harvesting is about.

Simply stated, the process of harvesting in financial terms is when we transfer riskier more volatile investments into a conservative and less volatile portfolio once the target or the goal of each segment is reached.

Okay, so this is a very goal-based program. And once you understand that when we hit our target amounts, that’s those numbers in green, every segment has a responsibility of providing income. So we let the money grow within the segment whenever we hit those target amounts. At that point in time, we want to take risk off the table and change the more aggressive investments into more conservative investments. We reduce risk.

Harvesting adds order and discipline to the investment process which results in better investment returns. Less risk and less selling based upon emotions. Without harvesting, the time segmentation model becomes more aggressively invested as a retiree ages and gets into the latter segments of the plan.

So having 80 and 90 year old’s, with their money all invested in long-term aggressive equities does not make any sense at all. Unfortunately, that’s not how the program works. If the time-segmented plan is properly monitored and harvested the process of monitoring and harvesting are imperative to the success of this time-segmented distribution plan.

I want you to think with me for a second when we talk about harvesting what’s happened over the last 10 years. You know, we’ve been busy harvesting our client’s segments as they reach their goal over the last 10 years because the markets have been very, very kind to us.

And I can tell you now that our clients are very happy that we’ve been harvesting along the way. We basically took the money out of the more risky things into less aggressive less risky things as we met our goals.

Okay, and then one last thing before I turn it over to the other guys here. Now that you understand the basics of the PIM, I want to show you a real-life example.

Okay, this version shows an actual model that we constructed for one of our clients about a year ago. It incorporates the client’s Social Security income and pension into the mix.

So this is by the way a 30-year retirement versus the 25 I was showing you before. But we allow the program to solve or maximize the way to get the most amount of income they possibly can, incorporating against Social Security, pensions, and so forth.

But I will tell you this, the Perennial Income Model truly has withstood the test of time. It’s goal based, it provides a framework for investing, a framework for distributing the right amount of money from the right accounts. It provides a framework to manage risk and as you’ll soon see it provides an excellent tool to assist us in organizing and implementing tax-saving strategies.

Now in 2007, the initial goal of the Perennial Income Model was to provide a logical format for investing in generating inflation-adjusted income from your investments throughout retirement.

As I just demonstrated, we accomplished this goal by projecting a retiree’s income over multiple decades. And in the beginning, we did not fully anticipate all the accompanying benefits that would result from projecting the right retiree’s income over such a long time frame.

There are unique planning opportunities that have manifested themselves and our eyes have been opened to a number of benefits that we could not have foreseen before creating and using the Perennial Income Model.

As we have projected income streams for our clients throughout their respective retirements, we have found that the Perennial Income Model satisfies many roles for our retirees that few systems or investment programs provide.

We want to share with you some of the advantages that we have seen and some of the ways that actually the Perennial Income Model helps to protect our clients.

And so anyway, let me turn the time over to Carson.

Provides a Retirement Framework to Follow (24:46)

Carson Johnson: Thank you Scott, let me just share my screen again.

All right, thank you Scott. So yeah, to support what Scott said, the Perennial Income Model does serve as a protection in many ways and helps provide a framework for our clients to follow.

And so the four points that I want to make here really quickly is to show the four different ways the Perennial Income model serves as a guide for our clients.

First, it helps our clients know the right amount of money that should be distributed from their investments. As it comes to a retirement plan, it’s not just the income that comes from investments that’s part of a retirement plan.

As Scott mentioned there’s Social Security, there’s pensions, there’s rental income, that’s part of this and so it’s just figuring out what is the right amount that should come from the investment portion that you’ve built up and saved over the years.

Second, it provides a guide in maximizing your tax-efficient stream of income. It’s a really important part as part of the retirement plan.

Third, it’s coordinating your Social Security benefits as well as your spousal Social Security benefits.

And then lastly, it’s managing inflation and volatility risk. Now we’re going to stay high level on a lot of these different points because there could be a webinar on every single one of these guides, but we’ll want to go into some of the main points as it pertains to these four ways that it serves as a guide.

So the first thing is that the Perennial Income Model offers flexibility. Now one of the most important considerations an advisor should be advising their clients on is to determine whether clients have sufficient funds to make major purchases or sustain a lifestyle.

Now I can’t go into all the details on how that is done perfectly because everybody’s lifestyle is different, and we know that life happens. And retirees don’t always follow a 30-year plan exactly.

Every scenario is different and whether you need to take a large lump sum distribution from your retirement plan, or have irregular income, or if you’re wanting to have more income in the earlier years of your retirement.

Whatever the situation may be, the Perennial Income Model helps map out how each scenario will impact your income. If you don’t have a plan, then you’re simply guessing and helping that it works out.

The second point is to maximize tax efficiency. So seeing your income presented through the Perennial Income Model allows us to tax by not for year one of retirement, but years one through 30, or one through 25, however long your retirement plan is with the goal of minimizing taxes throughout your retirement.

So the first couple of steps that we do in order to create this retirement plan is first, is to maximize income. And how we do that is about knowing how much money you can pull from your accounts and how that will impact your income.

The second step is to know what accounts to pull this money from to minimize taxes. Jeff will actually be talking in a little bit more detail about this later in the webinar to specifically answer the questions: how much we can pull from our accounts and what accounts to pull from when drafting and creating your retirement plan?

The next thing, I’d like to make this analogy, is related to a junk drawer. And I don’t know if any of you relate to this, but in my house, there is a drawer in my home that we refer to as the junk drawer which contains all sorts of different things in there.

It contains scissors, it has batteries, it has rulers, pens, pencils, etc. And it’s the place that you go to find really any random object, but it’s unorganized.

And oftentimes when clients come to us for help, they come to us with a junk drawer full of investments. Now, I don’t say that in a way that is mean, saying that their investment accounts or investments are bad in any way, but just simply that they come to us with an unorganized drawer of investments.

And sometimes just a little bit of help and organizing those investment accounts can make a big difference as it pertains to taxes. The Perennial Income Model positions a retiree’s plan in a way to organize their tax-deferred, tax-free, and non-retirement investment portfolios into a single tax-efficient stream of income that is designed to minimize taxes.

The creation of every individualized Perennial Income Model will be different because every person’s situation is different. But it’s the way we organize that Perennial Income Model that fits into each client’s situation that matters.

And as I mentioned before, Jeff will run through some examples with you later in the webinar about how to do this from a tax perspective.

Lastly, the Perennial Income Model serves as a guide for our Social Security claiming decisions. Social Security is one of the few sources of income that adjusts for inflation and is typically a major portion of a retiree’s income.

For these reasons, your decision to claim Social Security is so important and how it coordinates with not just your benefit, but also if you have a spouse, their benefit as well.

So many may be wondering, how do I maximize Social Security? Should I postpone my benefits until age 70? How do I coordinate my benefit with my spouse?

Generally, to start off with whether you claim earlier or later, the breakeven point, or at the point which those two points claiming earlier later collide is in your early 80s.

But there’s one lesson that is far more important when it comes to Social Security, which is it’s not just about maximizing Social Security, but it’s about maximizing your total retirement income.

So a few questions here to think about as we go through this webinar today. What income will you live off between claiming and taking your Social Security? Is it worth liquidating a part of your 401k or IRA accounts to maximize Social Security? Is there a difference in age between you and your spouse and how does your spouse’s benefit coordinate with your own?

As I mentioned before, every situation in case is different. But the Perennial Income Model allows us to focus on total income, not maximizing Social Security.

Also, just a little note similar to the timing of Social Security, those with a pension can determine if they have an option to take a lump sum rather than a monthly pension benefit, is also an important consideration, and figuring out how that impacts your total income.

Also, pension options that have survivorship options, meaning if something were to happen to you, that pension, how that continues on to a spouse also plays a role in your total income throughout retirement.

And so those are four ways that are guides that the Perennial Income Model serves for our clients.

And now I’ll turn the time over here to Josh to talk about the next benefit.

Acts as a Behavior Modifier (32:50)

Josh Glenn: Awesome, thanks Carson.

Well, I’ll tell you what. I’m excited to talk about how the Perennial Income Model is a behavior modifier.

One of the biggest reasons that I decided to come and work at Peterson Wealth Advisors was because of the way the Perennial Income Model helps our clients to be at ease and make smart investment decisions.

To start, I want to say something that may catch you off guard, and it’s this. In theory, investing is easy. You buy something at one price, when it goes up in value you sell it. You buy low and you sell high.

Now I know what you’re thinking, and you may be thinking something that my wife thinks a lot, Josh you’re wrong. But there are a few things that you can do to be a successful investor.

One of the most important things you can do is to match your short-term money needs with short-term less aggressive investments. And your long-term money needs with long-term more aggressive investments.

If you can do that, you can be a very successful investor. So if it’s so easy, why don’t we all just have money oozing out our ears? And that’s because actually implementing this type of strategy can be more difficult.

Here are a few common reasons it can be difficult. Misinformation, distractions, and perhaps the biggest one, our own emotions.

Our emotions can cause us to get in our own way and make bad investment decisions. As humans, we actually naturally tend to be bad investors.

In general, we’re short-sighted, prone to panic, and we have more biases than we’re often aware of.

One of the biggest biases we have is loss aversion. Studies show that the fear of losing is a much more powerful emotion within us than the satisfaction of gaining. And everyone’s probably experienced this.

So in other words, we’re going to feel almost twice as much pain when we lose a hundred dollars, then the joy we’re going to feel when we make a hundred dollars, or if we won a hundred dollars, kind of interesting.

And this bias predisposes all of us to be bad investors. One bad experience in the stock market which may be self-inflicted, maybe we caused that, maybe we made a bad decision, can cause someone to shun the explosive growth of the stock market over a lifetime.

There are millions of people who have missed out on the unbelievable market gains because of fear of seeing their accounts experience a temporary loss.

On the flip side, when investors recognize the reason they own a specific investment, when they understand how the investment fits into their overall financial plan, and when they understand when the specific investment will be needed to provide future income, investors can become quite rational.

When the crash of 2008 to 2009 occurred, about half of our clients were in the Perennial Income Model, and half weren’t. The investors who had date-specific, dollar-specific structure that the Perennial Income Model provided, they made better decisions than those who didn’t.

They didn’t panic, they knew that they were holding, they knew why they were holding the volatile investments that went down. And they also knew that they had the money they needed. They also knew the money they needed in the short term was invested in more stable less risky investments.

The therapeutic organization of the Perennial Income Model is extremely important. The decision not to sell during a future market decline may end up being the most important investment decision you will ever make. And the Perennial Income Model makes that decision easier.

Let me show you specifically how the Perennial Income Model can modify behavior.

We know that getting the needed return while taking on the least amount of risk possible is a pillar to successful investing.

The two main types of risk that retirees face are volatility in the stock market and inflation. Volatility refers to the constant up and downshifts in the market. Inflation is the rising costs of goods and services which erodes your purchasing power.

If we assume a 3% inflation rate every year, a dollar’s worth of purchasing power today will only be worth 41 cents worth of goods or services 30 years from now. Kind of scary to think about.

These two risks are very prevalent to every retiree, but the Perennial Income Model helps solve both these risks. Let me show you how.

Using this example, we address volatility with the first two segments of the model by investing conservatively in short-term safer investments.

Retirement Income Planning - spreadsheet demonstrating how the Perennial Income Model accounts for market volatility and inflation.

We understand that your short-term money can’t be going up and down with the daily fluctuations in the market.

If you had all your money invested in stocks when you are drawing income, it would be horrifying to be forced to sell your positions at extreme discounts because you need money for living expenses.

You can see here in segments 1 and 2, we are only assuming a 1% and 3% growth rate as this is your conservative money. When the market is down, the world tells you to sell your holdings and salvage your portfolio.

The Perennial Income Model tells you to hold your positions and wait out the market as your income needs are protected.

We address inflation, the other major concern for retirees with the latter segment of the model. You can see we are assuming much higher growth rates for these volatile equities, and that’s because they’re traditionally higher-yielding investments, and they can be inflation.

This is the only way to maintain your purchasing power over a 30-year retirement. While your loss of version bias may tell you to avoid investing in stock, the Perennial Income Model and history tell us that we need to invest in equities to beat inflation.

Now I’m going to turn the time over to our next presenter.

Serves as a Guardian (40:15)

Austin Lee: Thank you Josh, I really appreciate that. I’m excited to be here as well today to explain how the Perennial Income Model protects us and serves as a guardian as we move forward in retirement.

First, the Perennial Income Model serves as a guardian in a way to protect us from our older selves. Studies show, and from experience, we understand that as we age our cognitive abilities decline which significantly impacts our ability to make financial decisions.

Even though you may have gone through and endured many bear markets in the past and not allowed yourself to panic or give in to the pundits of the day, you’ve been able to stay away from making rational decisions, but that doesn’t mean you’d be able to do the same as you age if you’re not following a plan.

We’ve repeatedly seen cognitively sharp newly retired 65-year old’s morph into less confident slower to comprehend 80- and 90-year-olds. Sooner or later, it will happen to all of us in one degree or another unfortunately.

But it’s a valuable benefit to create a plan and understand that plan while you’re younger and you are mentally at the top of your game.

An even greater advantage to the Perennial Income Model is the knowledge that you’ll have a plan that will stick with you throughout the balance of your life as your cognitive abilities erode.

The next thing that’s important to understand is that the Perennial Income Model serves as a guardian when our loved ones pass away.

If you are a steward over your finances, the one in charge who takes care of the family, it is critically important that you answer the question:

How will my spouse make prudent financial decisions when I slip away from this life?

The Perennial Income Model can answer that.

It’s a cruel reality that when a surviving spouse inherits the money that they have important and critical financial decisions to make shortly thereafter. And it’s difficult because they have situational depression and it’s very difficult to get through every day.

An experience tells us that there’s more fraud that happens shortly after the passing away of a spouse than any other group. This makes them very vulnerable and susceptible to these kinds of things.

We know of families where they’ve bought a new motor home for $100,000 and shortly after the passing away of a spouse the surviving spouse has sold it for $19,000 dollars.

We hear of other stories where homes and cabins are sold for hundreds of thousands of dollars less than their actual value because the surviving spouse has panicked and is not sure if they’ll have the money to take care of their needs and continue living their life as they had before.

But when a loved one passes away there’s definitely a document or two that needs to be signed to transfer the accounts over into their name.

But the benefit of the Perennial Income Model is that the surviving spouse will follow the same plan that the couple’s followed for years.

Nothing changes and they’ll continue to receive the income inflation adjusted for the remainder of their life.

This again is a screen print of a Perennial Income Model, and one of the lessons that we’ve learned that’s most important during these vulnerable times is to have a plan. It is so vital to put something in place now to protect ourselves from our future selves and to make sure that our loved ones will be taken care of when we pass away.

Perennial (retirement) Income Model

What a blessing it is to know that as we cognitively decline, we’ll be taken care of and will have an income plan in place.

From our experience, it’s amazing and it’s interesting to sit down face-to-face with individuals and clients to implement this. You know as markets go up and down, as life circumstances change, a properly implemented and executed Perennial Income Model provides tremendous reassurance and indescribable peace of mind that our clients have a plan.

In any change of events or major events that happen in your life, you can rest assured that the Perennial Income Model can provide an inflation-adjusted income plan throughout retirement in the remainder of your life.

I’ll now pass the time over to Daniel who will continue to explain some of the benefits of the Perennial Income Model.

Bad Luck Insurance Policy (45:18)

Daniel Ruske: Great, thank you Austin. I’ll be talking about how the Perennial Income Model can be a bad luck insurance policy and how it protects the retiree from an episode of a bad sequence of return.

As we have already discussed, every stock market correction is temporary. However, that knowledge is only helpful if you are well positioned and able to select which investments to liquidate during a correction.

For example, let me tell you about Mike. Mike is 60 years old and has carefully planned for his anticipated retirement. He’s had a great career and saved a million dollars in his retirement accounts.

Mike understands that it’s important to invest some of his assets and equities to keep up with inflation, but also have a portion and bonds to predict him against being forced to sell stocks during the loss.

After doing a little research, Mike has decided to go with a 60/40 balanced mutual fund. What this means is Mike has his money in a fund that has 60% in stocks and 40% in bonds.

The day finally came and Mike’s retired. He started taking a monthly distribution from his mutual fund, and each month he simply sells a few shares of his mutual fund to support his monthly living.

Each one of these shares holds a portion of stock and portion of bonds. For the first few months, Mike is very pleased with his investment choice as the market was doing well. He was very comfortable liquidating a proportional amount of 60% stocks and 40% bonds for his needed monthly income.

Unfortunately, after just four months, his worst fears came to pass. The stock market dropped by 50%. Unlike during his working years, Mike couldn’t just wait for the stock market to recover, but he had to withdraw a portion of his money every month from his mutual fund just to pay the bills.

As Mike went through his monthly stipend, he realized that he was liquidating a proportional amount of stocks and bonds each month from his balanced mutual fund.

This meant that he was systematically selling stocks at a loss every month that the stock market remained down.

Now, Mike is not alone. This exact scenario happens and will continue to happen to millions of new retirees every time the stock market corrects itself.

It’s true when we are no longer contributing and we begin taking withdrawals from our accounts that the temporary up and down of the market can have a much bigger impact our investments than when we are working and had time to just wait out the market correction.

Now to be clear, Mike’s mistake was not in being too aggressively invested. A 60/40, or 60% stock 40% bond portfolio can be a very reasonable allocation for any retiree.

Mike’s mistake was failing to have a segmented income plan that allowed him to only liquidate the least impacted non-stop portion of his portfolio to provide his monthly needed income during the market downturn.

Now to further illustrate this point, I want to share with you another hypothetical example of two investors.

We have Mr. Green and Mr. Red, obviously green shirt, red shirt. They both retire, they’re the exact same age at 65. They both have saved up the exact same amount of a million dollars for retirement.

Comparison of returns with the Perennial Income Model used for Retirement Income Planning

They both planned to take out the exact same 5% of their initial balance each year, which is $50,000. And over from their retirement over the next 25 years, they’re both going to average the exact same investment return of 6%.

The only difference between the two investors, is that Mr. Green experiences high returns toward the beginning of his retirement and Mr. Red experiences the same high returns, but toward the end of the 25-year retirement.

Though both average the same 6% return per year doing retirement, Mr. Green ends up with more than 2.5 million dollars to pass on to his heirs at death while Mr. Red runs out of money halfway through his retirement.

Every aspect of the retirement experience is identical except for the one thing, the sequence or the order of the investment returns.

Mr. Green experiences the positive returns at the beginning of his retirement and the string of negative returns toward the end. Mr. Red experiences the same thing exactly in reverse as shown.

Again, both investors average 6% over a 25-year retirement, but the sequence of returns is the only difference and we can see by the table just how big a difference the order of returns make.

The good news is that it is possible to set ourselves up to be successful no matter what the markets happen to do year by year. The Perennial Income Model is a bad luck insurance policy that can protect you from the pitfalls that Mr. Red experienced.

Now, as Scott said, we’re not suggesting that the Perennial Income Model will make it so your account balances never go down or never suffer temporarily, that will happen.

What we’re saying is that by following the Perennial Income Model, you would not be in a position to have to sell stocks at a loss during the next market correction.

Mr. Red’s losses are realized as he liquidates equities in the down years at a loss to cover his expenses. If Mr. Red were to have his portfolio organized according to the Perennial Income Model, he would not be in a position, we would have to liquidate those stocks and those years to provide income.

He would have a buffer of conservative investments to draw income from while giving the more aggressive part of the portfolio a chance to rebound when the stock market temporarily experiences the periods of turbulence.

The Perennial Income Model’s design is intended to give immediate income from safe low volatile investments and at the same time furnishes you with long-term inflation fighting equities and your portfolio, equities that will not be called upon to provide income for years down the road.

As you may remember, market corrections typically last for months, not many years. So even if you are the unluckiest person on the planet and your retirement coincides with the market crash, your long-term retirement plans will not be derived as long as you’re following the investment guidelines found within the Perennial Income Model.

Well now I’ll let Jeff take it from here.

Identifies Tax-Saving Opportunities (52:06)

Jeff Lindsay: Thank you, Daniel.

The Perennial Income Model helps us protect our clients by helping us identify tax savings opportunities.

It was Morgan Stanley who said you must pay taxes, but there is no law that says you got to leave a tip.

Tipping’s an interesting thing right now. I feel like I have to tip as a go through the drive through the Sodalicious, but we do draw the line at the IRS.

So we believe it’s the responsibility of every investor and every investment advisor to do all in their power to legally pay the least amount of taxes possible. Because every dollar saved in taxes can be used for another purpose that is important to you.

Retirees face a different mix of taxes and tax concerns than the non-retirees. So here are a few things that we have to think about for our retirees.

Required Minimum Distributions, it’s kind of this ticking time bomb that happens that it’s something that we have to, we’re going to have to pay taxes on at some point, so managing that correctly.

The potential of converting too much pre-tax dollars into a Roth IRA can create additional tax liability that we didn’t really need to have.

There are penalties on the Required Minimum Distribution if you don’t take out your Required Minimum Distribution that you should.

The IRS, or excuse me, Congress changed the rules on us a little bit this last year and move that penalty all the way down to 25%, it’s still significant.

Higher potential for higher Medicare premiums depending on how you work your income situation. Higher capital gains taxes, capital gains taxes are intertwined with the rest of your income and you could jump into a higher racket there.

Paying extra taxes on Social Security income, the calculation for what is taxable of your Social Security is quite complicated and also intermixed with the other different parts of your income.

So the Perennial Income Model facilitates good tax planning. Scott Peterson says, “We have found that by using the Perennial Income Model to plan and project future income streams, we can easily identify and organize tax-savings opportunities.”

But how does that work? The Perennial Income Model helps us to organize our income and our assets in a way that you can kind of see the whole picture all at once. You can map out your income from year to year that will allow you to forecast and plan for future years today. And it also protects a legacy so we can decide whether we want to pass on tax-free or taxable income onto our heirs.

There are a few strategies here that we can go over and opportunities that we have for retirees in managing our tax brackets. So, if you know what the tax brackets are, and you have different opportunities to take income from one source or another you can manage those brackets over time.

Qualified Charitable Distributions, we’ve talked a lot about those over the past while and if you, I won’t go into all the details about the Qualified Charitable Distributions now, but it’s a good opportunity to make charitable contributions without paying taxes on those distributions you make from your IRA.

Roth conversions are a great strategy if done at the right time and in the right situation. In some situations, Roth conversions make all the sense in the world and in other situations, it doesn’t make as much sense or getting too aggressive which Roth conversions can be a problem.

Managing Medicare premiums, this is definitely one that a lot of people, you haven’t really heard of it, and it could come back to bite you. Medicare premiums show up when you take too much income in any given year. But you don’t see the result of that until two years later.

So you start down on this what you think is a great strategy and then two years later all the sudden you have this jump in your Medicare’s premiums that you weren’t expecting.

And then the potential for tax-free Social Security income. If you manage your overall tax situation properly and your situation is just right, you can actually have a tax-free Social Security income there.

Let me go through if I could, just an overall situation. This is the same income model that we’ve been looking at throughout the presentation. But what I wanted to do is just show there’s several different opportunities that we have from a tax perspective looking at this.

Spreadsheet outlining the various opportunities for tax savings using the Perennial Income Model for Retirement Income Planning

This is a person who has $700,000 in non-IRA kind of investments and $800,000 in IRA investments. So you can see on the left side there, the overall income, the other income is low.

So this retiree, age starts at age 64, and you could make Roth IRA conversions for a few years. And if you’re even younger than 64 you may be able to make those Roth conversions a little bit higher before Medicare comes into play a 65.

So kind of timing that out in the right way, that opportunity you can see on the right side, the Legacy, we’re moving that money. It starts out as an IRA and then it can turn into a Roth IRA over time paying some taxes upfront.

Meanwhile, we’re taking out income from the non-IRA account for those first few years and not having to pay tax on both the Roth conversion and the IRA distributions as you go along.

The middle section shows Required Minimum Distributions. So if you manage the Roth conversion properly, you also have some IRA money left. If you haven’t converted your entire IRA, you have some of that IRA left to be able to make Roth, excuse me, to be able to make Required Minimum Distributions and use those Required Minimum Distributions to pay charitable contributions that you already were going to make anyway.

So these are just a few opportunities that we have and you can see being able to have the Perennial Income Model laid out in front of us gives us an opportunity to see all the different aspects of your life and we’re able to take that now and have a better tax result.

In any given year we’re not trying to save as much as we can in this year. It’s looking at an entire lifetime left that gives us an opportunity to say where should we pay taxes early on, later, in the middle somewhere, should we spread them out evenly. Should I take on some tax liability so that my children can then have an inheritance tax-free? Should I pass that on to them because their tax rates are actually lower will be lower than mine?

It’s kind of looking at all those different options and it gives us an opportunity to do that tax plan.

So in summary, the Perennial Income Model helps us to avoid the tax land mines that might come up and helps us look for special tax opportunities that we have really that are specific to retirees.

The Perennial Income Model in Review (1:00:09)

Scott Peterson: Hey Jeff, thank you. Thank all of you for your help. You know, I just want to tell you all of you that are listening today, and some of you are here listening from other states I understand. But our office is kind of situated between UVU and BYU.

And I think Utah Valley University has one of the best financial planning programs in the nation. And of course, you have BYU with a wealth of talent and great people there too.

So whenever we need new advisors, I have the opportunity to get on the phone and we call some of the professors and tell them that we want the best and the brightest, and anyway, that’s where these advisors that you’ve been listening to come from.

I think they’re the very best and I’m so pleased that they’re working with me in our company.

Hey Josh mentioned something earlier on, he said, you know back in 2007, the Perennial Income Model was born but it was, think with me, it was immediately tested in ’08 and ’09.

And what really kind of launched it I think is that time period because we recognized that, you know, and by the way, we’d only had about half of our clients we’d been able to convert over to the Perennial Income Model simply because of time.

And we noticed that those who had the Perennial Income Model did so much better than those that didn’t. And really, it’s because they had a plan to follow, they weren’t as anxious, they understood. So after 2008-2009, we decided that that’s the only way we’re going to manage money for our clients going forward.

So again, we’ve been through several corrections now, it works great, and we’ve been able to refine it and make it better as the years go on.

So in summary, we’ll be done with this in just a minute, I just want you to think with me that, the Perennial Income Model is goal specific. So it matches your current investments with your future income needs. You know what you own, you know why you own it, and you know when it will be needed for your future income.

It creates a framework for investing. Because you have a goal specific plan, you know specifically how you should be investing. You know exactly when you need to liquidate and when you need to turn your investments into income so you can invest with confidence.

We find that a plan is the antidote to panic. So a time-segmented plan aligned with the program to harvest gains reduces investment risk if the plan is followed. And I honestly don’t know how we would even go about determining how to invest a retiree’s money without having a plan like this.

The Perennial Income Model provides a framework for distributing. You will know how much you can and should be able to take out of your investments. But the plan not only helps with investment discipline, it also helps with distribution discipline.

It helps you to monitor your own behavior and allows you to spend with confidence.

The plan creates a framework to manage risk. You know your greatest short-term risk, again, is stock market volatility. Your greatest long-term risk is that of inflation.

So the time-segmented plan, the Perennial Income Model addresses both of these risks. So you’ll have less volatile investments to provide for immediate income needs and more aggressive higher earning investments to keep up with inflation over the long run.

And then the additional benefits that frankly we did not think of when we created the plan back in 2007, this works as Daniel talked about as a bad luck insurance policy

So some of you may be those people, or you know those people who have retired right before a financial crisis, right before a stock market crash. We found the Perennial Income Model is very helpful in helping you manage that, to navigate those dangerous waters.

But it also protects you from your older self, and it will leave your spouse with a plan to follow at death.

And Jeff just kind of stuck his toe in the water there when it comes to tax reduction strategies. There’s just so much that can be done so, much good that could be done from a planning perspective with the Perennial Income Model.

Anytime you map out your income over 30 years, you can easily identify things that could be done now to reduce your taxes today as well as, you know years, in advance.

So anyway, we wanted to introduce that to you and just remind you of the, I mean all these things combined together really help to protect our clients. And I think with it, protect our clients I think from maybe their biggest risk, themselves.

Okay, once you have a plan to follow and stick with it, you’ll do better than those that don’t. I just know that to be the case.

In 2007, we realized that we were giving something special when we kind of figured out the Perennial Income Model. And it has superseded every expectation and it has benefited now hundreds of retired families in ways that we could not have even imagined back then.

But it does all these things we talked about. It provides us framework for managing your finances throughout retirement. And anyway, I’m just thankful for it. I’m thankful for my advisors and for all of you that are clients.

And for those that aren’t clients, we’d love to introduce you in more depth to this. If you’re interested, please contact our office, get the book, and see if this makes sense to you.

Question and Answer (1:05:51)

Daniel Ruske: So Scott, we have a couple questions, are we ready for that?

Scott Peterson: Yeah, let’s do that.

Daniel Ruske: I’d love to do a few questions. And I guess we’ll do probably five or so minutes and then there’s a survey. And so we promise we won’t take too long if you don’t mind hanging in there and giving us some feedback on the presenters and also on what you might want to hear next time.

And so I’ll start with the questions for Scott you and Jeff. And I thought they were really good ones.

So the first one I have here is, let me find it again. Okay, after the first five years is over does the investment on the remaining segments change? For example, would the second segment be invested as Segment 1 was, or a more conservative investment? Reed would like to know that answer.

Scott Peterson: Jeff you want to answer it, or should I?

Jeff Lindsay: Sure, so after the first five years, it’s not necessarily based on the time as much as the harvesting that Scott was kind of talking about. So what we’re working towards is reaching those goals.

If you think back to the spreadsheet that we had up, those yellow boxes. Those are the goals we’re shooting for and we find that we actually hit those goals when the market is, you know, kind of hitting all-time highs which only makes sense.

But that’s the time when a lot of people are getting greedy and it’s also the time when we say, okay, we’ve hit our goal now we’re ready to become more conservative there even though it feels like no, I want to stay in the market at this point.

That’s the time to go ahead and get more conservative. Not necessarily at three years or five years or ten years, it’s when we hit our goals.

Scott Peterson: Yes, so I think the answer, yeah, let me add to that thank you Jeff. The answer is, you know, we have the programs that are developed to help us monitor our progress in every single segment.

And so we’re getting more conservative as we reach our goals whenever we reach those goals. Okay, and so it’s not just at the five-year mark, but we’re monitoring that every day. And our clients have access to seeing the same thing as far as how the different segments are progressing. I hope that answers the question.

Daniel Ruske: We’ve got a couple more here. Craig wants to know, how do you guys make money?

Scott Peterson: Right, I’ll take that. So we charge just a flat management fee that’s agreed upon right up front. So, you know exactly how much we will withdraw out of your account.

And this is going to be depending on the amount of money that we manage. It’s going to be in the probably one to one and a quarter percent range. Okay, and so that’s how it works out. But I want to reassure everybody, and I think this is very important for you to ask questions if you’re looking for an advisor, to ask this question.

Do you earn a commission? And the answer with us is no. I don’t even allow people to have licenses to earn commissions in our office. We’re strictly fee-based and so there will be this one percent or so fee that we’ll take out on an annual basis to manage your portfolios.

And I might add with all the tax planning we do, all the investment management we do following the Perennial Income Model, if we’re not one percent by all means if we’re not worth that then you should take your money someplace else or do it yourself. But I think we rarely lose a client because once they’re on board, they see the value that we offer.

Daniel Ruske: I’m going to do one more here, and then if more come through, I’ll let you know. But this question is, how often does your company review clients’ portfolios, and how often does the client need to meet with you to review the portfolios?

Scott Peterson: So here Jeff, I’ll jump on that one too if you don’t mind. We have a formal quarterly investment committee meeting, so that’s what we formally do. So we’re taking a look at every single investment within all the different portfolios that we manage.

But I might add, you say how often do we look at the portfolios? Well, because all of our clients have relatively the same portfolios, maybe they have a different mix, you know one’s maybe heavier on the equity side than the other.

But the portfolios we manage, we just say, how often we look at them. Well, we look at them every day because everybody has the same portfolios. That’s easy for us if we see something that’s not right within the portfolio.

If we need to make an adjustment then we can make an adjustment across the board for all of our clients at the same time. So I think we have a very efficient system of managing portfolios.

Jeff Lindsay: And if I can also just add quickly, we meet with our clients as often as they need to meet with us. It’s at least a couple of times a year, but that’s when we’re sitting down and looking at more planning opportunities and your particular situation about what’s going on.

The investments are being managed across the board in the background all the time. Yeah, kind of you like said.

Daniel Ruske: Awesome, yeah, I think the other questions I’ve typed out. So if you didn’t get your question answered, if there’s one you didn’t want to send in front of everybody, please email us and that’s all Scott.

Scott Peterson: Great, well let me just conclude that if you’re an existing client and you’d like to review your Perennial Income Model, please reach out to your advisors, or call the office.

And again, if you’re if you’d like to know more, please get the book and please maybe reach out to us. We’d love to maybe show this, show you how this could work in your behalf.

So anyway, thank you so much everybody for joining us today, and we look forward to talking to you all soon.