Webinars Category: Perennial Income Model™

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.

The Risks of Going Without a Financial Plan

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.

A Brief History of the Perennial Income Model™

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.

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.

How Segments Maintain Portfolio Stability

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.

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.

Role of Harvesting in Investment Success

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.

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.

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.

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.

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.

Retirement Income Planning 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.

Unlock the Benefits of Roth Conversions – Welcome to the Webinar (0:00)

Scott Peterson: Welcome, everybody. Let’s get this thing started. My name is Scott Peterson. I’m the managing partner of Peterson Wealth Advisors.

We appreciate the time you’re willing to spend with us today. I know we have a mix of existing clients familiar with our processes and a group of non-clients wondering what this presentation is all about. I promise that both groups—both non-clients and existing clients—will benefit from this presentation.

Clients will be reminded how their money is invested and how their income is being created to support them during their retirement. Our non-clients will be introduced to a unique, proprietary retirement income plan that will change the way you look at retirement, a plan that could significantly enhance your retirement experience.

The big reason we’re presenting this webinar topic today is because I recently released the revised edition of my book “Plan on Living,” which outlines the Perennial Income Model™, our process. It also discusses what we’ve learned over the last 15 years since its implementation. I have a whole chapter dedicated to our lessons learned and another chapter on some of the tax savings opportunities we’ve discovered using the Perennial Income Model.

Here’s a bit of background. In 2007, we created a process to provide a stream of inflation-adjusted cash flow to our retired clients, which we named the Perennial Income Model. This year, the Perennial Income Model is turning 15 years old. We now have more than 500 retired households depending on this model for their retirement income.

We’ve experienced a lot over the last 15 years, including stock market ups and downs and two bear markets, so we’ve learned many things. The question is, how has the Perennial Income Model performed? What have we learned since creating and adopting this methodology back in 2007? We intend to answer these questions for you today. But first, let me take a couple of minutes to remind you or maybe introduce you to what the Perennial Income Model is and how it works.

I think the best way to understand the Perennial Income Model is to take you back to 2007 and explain how it was created. Back in 2007, this was me before I involuntarily joined the Shrek lookalike contest. I was a lot younger back then.

Anyway, it was a frustrating time for me, to say the least. Those of you who were with me back then remember what was going on in 2007. We had just come off the dot-com bubble bursting in 2000, started to gain some traction, and then 9/11 happened. Those years were tough.

I was frustrated with the investment process because I was managing money for many retirees. I recognized that the investment process was broken. It just didn’t work. Prior to 2007, I felt like I was expected to do the research, follow the right economists, accurately guess the future, and invest my clients’ money in the best investments, getting them in and out of the stock market at the right time. It was an impossible task, and it remains impossible today.

How do you successfully guess and invest in the future when unforeseen events like terrorist incidents and pandemics get in the way? The simple answer is that you don’t. Investing by attempting to guess the future didn’t work in 2007, and it still doesn’t work in 2022.

I understood in 2007, and it is still true today, that retirees need safe money to draw income from when the stock market drops. They also need to be invested in stock-related investments or equities to keep up with inflation. There’s a delicate balance to strike, and how do you possibly strike that balance without having a plan?

I recognized in 2007 that most retirees were going through retirement without any formal plan for creating and maintaining their retirement income. Working without a plan is dangerous. Fear and greed become the greatest influences in our investing, and emotionally driven investment decisions never produce good outcomes.

In 2007, and still today, there were and are many rule-of-thumb guidelines thrown about, but I didn’t find any specific plan to help retirees know how to invest, how much they could and should distribute from their IRAs and 401(k)s, or a plan to minimize both risks and taxes in their situation. I was looking for a plan to match retirees’ current investments with their future income needs, but no such plan existed.

During this frustrating time, I did a lot of research and came across a paper written by Nobel Prize-winning economist William Sharpe, a Stanford guy. I found his paper particularly compelling. In his paper, he introduced the concept of time-segmented investing to provide retirement income. He suggested that when a person retires, their investment funds should be divided into 30 separate investment accounts, with each account responsible for providing income for one year of a projected 30-year retirement. There would be an account for the first year of retirement, a second account for the second year, and so on until the plan is built out over 30 years.

Okay, so the value of such an approach to investing was obvious to me because the money set aside to provide income in the first year of retirement needs to be invested much differently than the money you won’t need for 30 years. In my opinion, at the time, I thought his relatively simple and straightforward academic approach to investment management for retirees beat all the market timing and future-guessing methods used by the investment industry.

To help you understand this a little better, the money set aside in the account to provide income during the first year of retirement has to be absolutely safe and stable. It can’t be invested in the stock market, as it would be subject to significant market fluctuations. Neither fighting inflation nor getting a large investment return is a concern with account number one because of its short duration. So, safety and stability are paramount. First-year money should be held in ultra-conservative investments and should not be subject to much volatility.

On the other end of the spectrum is the money designated to provide income during the 30th year of retirement. The objective of this account is to keep up with the erosion of purchasing power due to inflation. Dollars within this account will have to be invested in inflation-fighting equities. Short-term volatility is expected but irrelevant in this account because the money won’t be needed for three decades. Collectively, equities have never lost value and have always beaten inflation over time.

The 30 separate accounts would start as very conservatively invested and then progressively become more aggressive as the need for income from these accounts is pushed out over 20 and 30 years. By following this program of investing, the retiree’s short-term risk of market volatility is dissolved, and the long-term threat of inflation is managed.

As much as I liked Dr. Sharpe’s concept in theory, it wasn’t practical to implement. I didn’t want to create and manage 30 separate accounts for each of my retirees, and certainly, my retired clients didn’t want to monitor 30 separate accounts either. The hassle and expense of this endeavor rendered the academically solid idea of time-segmenting retirement funds nearly impossible.

Not long after reading Dr. Sharpe’s paper, I visited a Christmas tree farm where you cut down your own tree. At the tree farm, I walked by the saplings, then the two-foot-tall trees, and then various progressively larger pine trees until I reached a group of trees prepared for harvest that year. The smaller pine trees in their various stages of growth were there to provide future income for the Christmas tree farm. The farm had planned years in advance for its future income needs.

That day, I thought 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. I remember thinking, if the Christmas tree farm can figure out how to do this, I should be able to do the same. There must be a way of transforming the concept of time segmentation into a practical model of investment management.

As I thought more about this, I realized that I needed to adjust the length of time for each account. I changed the time each account had to provide income from a one-year period to five years. Managing six accounts that provided income for five-year segments versus the original one-year timeframe was workable and followed the original objective that Sharpe expressed.

I ended up with accounts that covered the first five years of retirement, a second account that covered the second five years of retirement, and so on until 30 years of retirement were covered with six manageable investment portfolios. In my office, we call these five-year periods segments. Once all the wrinkles of transitioning an academic idea into a workable methodology were ironed out, we launched our trademarked version of time segmentation, which we call the Perennial Income Model.

Let me share with you the Perennial Income Model and how it works. Here’s an example using a 25-year versus a 30-year plan for the sake of saving a little time today. We start with a million dollars and end with a million dollars in 25 years. That’s the goal of the plan.

We’re going to divide the million dollars that this person has into six different segments. Each segment is responsible for creating income for a five-year period of retirement. Segment one takes care of the first five years of retirement, segment two the second five years, and so on. We also have a legacy segment at the end. The responsibility of the legacy segment is to replace the money we started with. So we start with a million dollars, and the goal is to end with a million dollars in 25 years.

As you look at this, I want to point out a couple of things. First, we use very conservative assumptions.

As far as growth rates go, we’re the only people I know who invest like this or use this model. So, what advantage do we have to use unrealistic assumptions? All we would do is make our clients unhappy and make this whole program unrealistic. Therefore, we use very conservative assumptions.

Notice in segment one, we’re only showing a 1% growth rate, segment two, 3%, and so forth. Have we done better? Are we doing better? Absolutely. But again, what good will come from using aggressive growth rates here? So, we are very conservative. The idea is to underpromise and overperform, which, in fact, we have done.

The second thing I want to point out is in this model, we have a design where every five years, you get a raise to keep your money in line with inflation.

The third thing I want to point out is the total value column. When you look at segment one, we’re spending all of $220,979 to provide income for the first five years. We’re putting $220,000 of the original million dollars there, and it’s going to provide $3,774 per month in income for the five-year period.

We truly are spending all of that $220,979 to give you income for the first five years, so you would think the total value of the account would be going down. However, notice the total value column. While we’re spending segment one, segments two through your legacy segments are all growing and invested, so your total account value stays relatively flat, around a million dollars.

Next, look at the total distributions over 25 years. This client would take out $1,562,336 as income. The idea is to start with a million and end with a million dollars. So, the client would have $1,562,336 in income and still have the million dollars they started with.

Now, the question is, can we pull more income out of the model? Absolutely, we can. There’s no rule saying we have to end with a million dollars. Some people are very concerned about leaving a legacy, while others are not. We do like to leave some money there as an insurance policy because you don’t know what’s going to happen at the end of life. There could be nursing home expenses or other costs that could deplete your accounts, or you might live to be 105 years old. So, we want to leave some money as a safeguard. Any leftover money would go to your heirs or charity, as you see fit.

Now, let me talk to you about harvesting. It’s funny when I show this screen at Education Week, that’s when all the cameras come out. I’m sure there have been some screenshots today, and that’s okay. But I want to warn you that there’s much more to this than creating a spreadsheet. Sometimes I feel like the negligent adult who tosses the keys to a brand new sports car to a 16-year-old and says, “Here you go, this is all you need.”

Even though you may be very adept at creating spreadsheets or able to put together a plan following this pattern exactly, please don’t think that you’re done. Quite the contrary, you’ve just begun. A time-segmented distribution plan takes a couple of hours to create, but it takes 30 years of discipline to successfully implement. Those who create spreadsheets, invest, and then forget about their investments or abandon the plan will not have a successful outcome. When investor discipline fails, the plan will fail.

The essential step of harvesting in a time-segmented program is where the rubber meets the road and makes this thing work. Harvesting, in financial terms, is simply transferring riskier, more volatile investments into a conservative and less volatile portfolio once the target or goal of each segment is reached.

The Perennial Income Model is very goal-based. For each segment, we change more aggressive investments into more conservative ones once we hit our target numbers. Harvesting adds order and discipline to the investment process, resulting in better investment returns, less risk, and less emotionally driven selling.

Without harvesting, the time-segmentation model becomes more aggressively invested as the retiree ages, which doesn’t make sense for 80 and 90-year-old retirees to have all their money in equities. Thankfully, because of harvesting, that doesn’t happen.

I will tell you, the processes of monitoring and harvesting at the right time are imperative to the success of a time-segmented model. We have developed computer programs to manage the 500 clients we have. We closely monitor and harvest every segment of each client’s portfolio to maintain order, reduce risk, and ensure the plan works.

On the screen here, I want to point out that this is an actual Perennial Income Model we put together for one of our clients very recently. We started with one and a half million dollars, and the idea is to end with one and a half million dollars in 30 years. We had to add that extra segment, but what makes this more real than the previous screen is that I included other income in this model. This other income includes this gentleman’s pensions, Social Security, and his spouse’s Social Security.

The Perennial Income Model spins off the income, and then we add the other income (Social Security, pensions, etc.) to come up with a total income column. This way, we can project what the future income for this client will be and solve for the total income. We add the other income, know the starting amount of money, and let the computer solve to maximize the total income for the client.

The Perennial Income Model truly has withstood the test of time. It’s a goal-based program that provides a framework for investing. Frankly, I wouldn’t know how to invest people’s money unless we had a method to match their current investment portfolio with their future income needs. The Perennial Income Model does that. It provides a framework for distributing the right amount of money throughout retirement. It helps us know how to manage risk and market volatility and how to take care of inflation.

As you will soon see, it is an excellent tool for organizing and implementing tax-saving strategies. The initial goal of the Perennial Income Model was to provide a logical format for investing and generating inflation-adjusted income from investments during retirement. We accomplished this goal by projecting a retiree’s income over multiple decades. Initially, we did not fully anticipate all the accompanying benefits that would result from projecting a retiree’s income over a long time period.

Unique planning opportunities have manifested themselves, and our eyes have been opened to several benefits we could not have foreseen before creating and using the Perennial Income Model. As we’ve projected income streams for our clients throughout their respective retirements, we have found that the Perennial Income Model satisfies many roles for retirees that few systems or investment programs can provide.

We want to share with you some of the advantages that we have seen our clients benefit from since implementing the Perennial Income Model back in 2007. So, let me turn some time over to Alex Call to go over some of these.

The Perennial Income Model is a Guide (22:17)

Alex Call: Thanks, Scott, for setting up everything. As we fast forward 15 years, we can see what some of these benefits are that Scott has been talking about. What we want to do here is, as Mark shows the slides, understand how the Perennial Income Model works as a guide and what we’ve learned from the past 15 years.

The Perennial Income Model will be a guide in four different areas. The first is distributing the right amount of money from your investments through time segmentation. Then we’ll touch on how withdrawing income from the proper accounts can maximize tax efficiency, and Mark will talk about this in more detail. The Perennial Income Model helps us determine when to start Social Security benefits, pensions, and other sources of income, and how they should fit into your overall plan. Lastly, Alek will discuss how the Perennial Income Model serves as a guide to managing inflation and volatility risk.

You can see that we will focus on tax efficiency, Social Security, managing inflation, and volatility. Mark, if you go to the next slide.

So Scott primarily talked about how the Perennial Income Model offers guidance in distributing the right amount of money from your investments. However, as we look at those different spreadsheets, I want you to know that the Perennial Income Model is not something set in stone. It offers flexibility.

One of the most important considerations an investment advisor should be advising their clients on is whether their clients have sufficient funds to make major purchases and sustain certain lifestyles. Having the Perennial Income Model helps us achieve that. For example, let’s say you are five or six years into the plan and you’re taking out that stream of income, but you need $30,000 to $50,000 for a new car, kitchen remodel, or roof repair. With this guide, we can determine where that lump sum should come from and how it will affect your income moving forward. We can weigh the pros and cons and see the consequences of taking out large lump sums of money.

Other examples include needing less income in the first few years of retirement but wanting more later, or wanting more income in the first 10 years of retirement for travel or other activities. The Perennial Income Model provides the flexibility to accommodate these situations. Every situation is different, so we don’t want to get too specific here, but just know that there is a lot of flexibility within the Perennial Income Model.

Next, I want to talk about how the Perennial Income Model helps us minimize taxes. The first step of the Perennial Income Model is to maximize income, but we have also noticed that it allows us to minimize taxes. Mark will talk more about this in depth. Essentially, the Perennial Income Model helps us determine how much we can pull from our accounts and which accounts we should pull from.

As we work with clients and prospects, we often see that they have a “junk store” of investments. It’s not that their investments are junk, but they are unorganized. They might have a couple of 401(k)s from old employers, a Roth IRA, a trust, or a joint account that isn’t a retirement account. The Perennial Income Model allows us to organize these accounts into a tax-efficient stream of income designed to minimize taxation throughout every stage of retirement. We look at it from a 30-year perspective, aiming to minimize taxes not just in year one of retirement but throughout the entire period.

Mark will dive deeper into the tax aspects, but the next portion I want to cover is how the Perennial Income Model serves as a guide to know when to claim Social Security. You might think the goal is just to maximize Social Security, but that’s not the case. If you want to maximize Social Security, you would postpone benefits until age 70, with the break-even point being your early eighties. However, the question is not just about maximizing Social Security but about maximizing total income in retirement.

For example, if you retire at 65 and take Social Security at 70, what money will you live on during those five years? Is it worth liquidating a large chunk of your 401(k) to maximize Social Security? Also, consider your spouse’s age difference and work history. When will they take their Social Security? These factors must be considered. The Perennial Income Model allows us to look at the big picture, not just one aspect of retirement.

The same principles apply to pensions or other mailbox money, such as rental properties. Should you continue with a rental property? When does it make sense to sell it? The Perennial Income Model helps us make these decisions by maximizing your total income in retirement.

Things like that really give us the guidance to know what to do in these instances. Now, Alek is going to talk a little more about that final area where the Perennial Income Model can be a guide.

The Perennial Income Model is a Behavior Modifier (30:55)

Alek Johnson: Perfect. Thanks, Alex. Today, I’m going to talk about how the Perennial Income Model is a behavior modifier. To start, I’m going to say something that may catch you off guard: in theory, investing is actually easy. Now, I know what you may be thinking—easier said than done, right? But when you think about it, all you need to do to be a successful investor is to match your short-term money needs with short-term investments and your long-term money needs with long-term investments. If you can do that, you can be a pretty successful investor.

So, what gets in the way? Because as we all know, actually implementing this type of strategy can be much more difficult. There are many reasons, including misinformation, distractions, and perhaps the biggest one—our own emotions. We often get in our own way, and our emotions cause us to be naturally horrible investors.

In general, we are shortsighted, prone to panic, and have more biases than we are 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. In other words, we feel almost twice the pain when we lose $100 than the joy we feel when we gain $100. This predisposes all of us to be bad investors. One bad experience in the market, which unfortunately is often self-inflicted, can cause a person to shun the explosive growth of equities over their lifetime. There are millions of people today who have missed out on unbelievable market gains because of the fear of seeing their accounts experience a temporary loss.

On the flip side, when investors recognize the reason for owning a specific investment, understand how that investment fits into their overall plan, and know when that specific investment will be needed to provide future income, investors can become quite rational. When the crash of ’08 and ’09 occurred, about half of our clients had transitioned to the Perennial Income Model, and half had not. The investors who had the date-specific, dollar-specific structure that the Perennial Income Model provided made better decisions than those who didn’t. They didn’t panic because they knew why they were holding onto those volatile equities. The therapeutic organization of the Perennial Income Model is extremely important because the decision not to sell during a future market decline may end up being the most important investment decision you will ever make.

Now, 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 the foundation of successful investing. The two main types of risks retirees face are volatility and inflation. Volatility refers to the constant ups and downs in the market, while inflation is the rising cost of goods and services, which erodes your purchasing power.

To give you an example of inflation, if we assume a 3% inflation rate, a dollar’s worth of purchasing power today will only purchase 41 cents worth of goods and services in 30 years. These two risks are very prevalent for every retiree, but the Perennial Income Model helps us solve and manage both of these risks.

Using our example, we address volatility within the first few segments of the model by investing very conservatively. We know that your short-term money can’t be subject to the daily fluctuations of the market. In a down market, if you had all your money invested in stocks when you are drawing your income, it would be horrifying to be forced to sell your positions at extreme discounts due to needing that money for living expenses. In segments one and two, we are only assuming a 1% and 3% growth rate as this is your conservative money. When the market is down, the world will tell you to sell all your holdings and salvage what you can from your portfolio. The Perennial Income Model, on the other hand, tells you to hold your positions and wait out the market as your income needs are protected.

We address inflation with the latter segments of the model. You can see here that we assume much higher growth rates as these volatile equities are traditionally higher-yielding investments that can beat inflation and maintain your purchasing power over a 30-year retirement. While your loss aversion bias will tell you to avoid investing in stocks now that you’re retired, the Perennial Income Model tells us that we need to invest in equities to beat inflation.

I’m now going to turn the time over to Carson to discuss how the Perennial Income Model serves as a guardian.

The Perennial Income Model Serves as a Guardian (36:00)

Carson Johnson: Thank you, Alek. I’m happy to be here and excited to share a couple of ways that the Perennial Income Model serves as a guardian for our clients and retirees.

Protects us From Future Selves

First, the Perennial Income Model can protect us from our older selves. Studies have shown, and in our experience, we have seen that as our mental capacity declines and our memory worsens, our financial decision-making abilities also decline.

Many of you have endured bear markets and haven’t allowed yourselves to panic or make rash investment decisions, but that doesn’t mean you’ll continue to do so. Cognitive ability decline in retirement is a very real challenge.

We’ve seen multiple times that a confident newly retired 65-year-old can morph over time into a less confident and slower-to-comprehend 80- or 90-year-old. Sooner or later, this happens to all of us to some degree or another, and it’s crucial to be prepared.

It’s also valuable to become familiar with and have your money managed within a well-defined and goal-specific structure, a retirement income plan, while you’re mentally on top of your game. Just like Alec mentioned, having a logical guidance system for those of us in retirement is important. An even greater advantage is the knowledge that you have a plan in place that you can stick with for the balance of your life, even if your cognitive abilities decline.

When a Loved One Passes Away

The second way the Perennial Income Model serves as a guardian is when a loved one has passed away. An important question I suggest all retired couples ask themselves is, if you’re the designated money authority in your household, who will support your surviving spouse in making important financial decisions once you slip away from this life?

It is a cruel reality that all widows and widowers have to make important decisions immediately after the passing of their loved one. New widows and widowers are often in shock, facing depression, and struggling to get through their day-to-day lives, let alone trying to manage their finances or the ups and downs of the market.

Experience tells me that there is more fraud committed against this group than any other group we’ve seen. For instance, we’ve seen situations where new widows have been approached by buyers to purchase, for example, a motor home worth $100,000 and ended up selling it for $19,000 because they were desperate for cash and worried about their future income needs. Likewise, we’ve heard of situations where houses and cabins were sold for hundreds of thousands of dollars less than their actual value.

We often hear that, because a loved one has passed away, survivors feel like their lives have turned upside down. By having a plan like the Perennial Income Model, it helps ensure safety and peace of mind, so their financial lives don’t have to be turned upside down as well.

Now, don’t get me wrong. When a loved one has passed away, there will certainly be changes. There will be documents that the surviving spouse will have to sign to move accounts from the decedent to the surviving spouse’s name. But overall, that surviving spouse follows the same Perennial Income Model that they had established many years prior. It provides that peace of mind for our clients.

One of the lessons we’ve learned over time is that we will all make important financial decisions during these vulnerable times. During these times, it’s vital to have a plan in place. As the markets go up and down and our life situations change, having a properly implemented and executed Perennial Income Model provides tremendous reassurance and peace of mind to our clients that their income is taken care of and that they have a plan in place.

I’ve realized when working with clients that it turns these major events into something manageable and that they have confidence in an inflation-adjusted stream of income that will last throughout their retirement. Now I’ll pass the time over to Daniel.

The Perennial Income Model can be a Bad Luck Insurance Policy (40:24)

Daniel Ruske: Awesome. Thank you, Carson. Very important. Perfect. In this portion, we will cover how the Perennial Income Model can be a bad luck insurance policy for retirees from an unfortunate sequence of returns. In other words, it can protect you if you are unlucky and happen to retire around the same time as a stock market crash.

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

Let me give you an example about Mike. Mike is 60 years old and has carefully planned for his anticipated retirement. He’s had a very good career and saved over a million dollars in his retirement accounts. Mike also understands that it is important to have a portion of his money in equities to keep up with inflation, but also have a portion in bonds to protect him from volatility. After doing a little research, Mike has decided to go with a Vanguard 60/40 balanced mutual fund. What this means is Mike has his money in a single fund that has 60% stock and 40% bonds.

The day finally came, and Mike retired. He started taking a monthly distribution from his mutual fund. Each month, he simply sells a share of this mutual fund to support his monthly living. For the first few months, Mike is very pleased with his investment choice, as the market has done very well. He is very comfortable liquidating the proportional amount of 60% stocks and 40% bonds for his monthly needed income.

However, after just four months, his worst fears came to pass. The stock market dropped by 50%. Unlike during his working years, Mike could not just wait for the stock market to recover. He had to withdraw a portion of his money every month from his mutual fund just to pay the bills. As Mike withdrew his monthly stipend, he realized that he was liquidating a proportional amount of his 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.

Mike was frustrated and thought to himself that he was probably the most unlucky person on the planet. Unfortunately, Mike is not alone.

This exact scenario happens and will continue to happen to millions of new retirees every time there is a stock market correction. It is important to understand though that Mike’s mistake was not in being too aggressively invested. Because a 60% stock/40% bond portfolio may be a very reasonable allocation for a new retiree. Mike’s mistake was failing to have a time-segmented income plan, that allowed him to only liquidate the least impacted non-stock portion of his portfolio to provide his monthly needed income during the stock market downturn.

To further illustrate this point, I want to introduce to you Mr. Green in the green shirt and Mr. Red in the red shirt. Both of these investors have decided to retire at the same age of 65. They both saved up the exact same amount of one million dollars for retirement, and they both plan to withdraw 5% of their initial balance each year to have an annual income of $50,000. They have both averaged the exact same return of 6% per year over their 25-year retirement.

The only difference between these two investors is that Mr. Green experienced higher returns toward the beginning of his retirement, whereas Mr. Red experienced the same returns but at the end of his retirement. Although both averaged 6% per year, Mr. Green ends up with more than $2.5 million to pass on to his heirs, while Mr. Red runs out of money about halfway through his retirement. Every aspect of their retirement experience is identical except for one thing: the sequence or the order of the investment returns.

As you can see on the chart, Mr. Green gets the higher returns toward the beginning and the negative ones toward the end, whereas Mr. Red experiences the same returns only in reverse. You can see on the chart once again how big a difference this makes.

The good news is that it is possible to set ourselves up to be successful no matter what the market does 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, I’m not suggesting that following the Perennial Income Model will guarantee that your account will never go down or that it will never suffer temporarily, because it will. What I am saying is that by following the Perennial Income Model, you should not find yourself having to sell stocks at a loss during the next stock market correction. Mr. Red’s losses are realized as he liquidates equities in a down year 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 where he would have to liquidate these stocks in the down years to provide income. He would have a buffer of conservative investments to draw income from while the more aggressive part of his portfolio has a chance to rebound when the stock market temporarily experiences turbulence.

The Perennial Income Model is designed to give immediate income from safe, low-volatility types of investments. At the same time, it furnishes you with long-term, inflation-fighting equities in your portfolio—equities that will not be called upon to provide monthly income for many years down the road. As you may remember, market corrections typically last for months, not years. So even if you are the unluckiest person on the planet and your retirement coincides with a market crash, your long-term retirement plans will not be derailed as long as you are following the investment guidelines found in the Perennial Income Model.

I’ll now let Mark continue with some of the tax benefits provided by the Perennial Income Model.

The Perennial Income Model is a Tax Planner (46:30)

Mark Whitaker: Thank you, Daniel. I’ve enjoyed the presentation and thought, “Wow, this is a really good summary of all the benefits of the Perennial Income Model.” Over the last several years, I’ve enjoyed helping retirees implement this investment process in their own situations. Let me tell you a little bit about myself. Before joining Peterson Wealth Advisors, I was a combat engineer in the United States Army.

Why am I sharing this? As a combat engineer, your role is to shape the battlefield. Your role is to decide when and where to engage the enemy. We want to face the enemy on a ground that’s favorable to us. We want to face the enemy in a situation where we have the advantage. I share this because that’s how I think about tax planning. Because we have the Perennial Income Model, we can map out and look at a retiree’s income and tax situation from a bird’s eye view, giving us a broad view of what’s likely to happen. This allows us to decide when, where, and how much taxes to pay in order to do it in a way that is most advantageous to the retiree.

I love this quote from Morgan Stanley, found in some of the information here from the second edition of “Plan on Living.” At a high level, we should ask the question, why tax planning? Why saving taxes? When it comes to tax planning, every dollar we can save in taxes is an additional dollar that can be used towards something more important to you, whether it be retiring earlier than expected, having additional money to live on and enjoy life, or giving and helping others by donating and putting money towards a meaningful purpose. Every dollar saved in taxes is something that can enhance and benefit your retirement.

Let’s get down to tax planning and what we’re going to cover in this section. I want to identify specific ways that the Perennial Income Model provides a framework for excellent tax planning. For retirees, there are tremendous opportunities as well as landmines, things to avoid. We’ll then put it into an example and show you what that might look like.

How does the Perennial Income Model allow us to do great tax planning?

We’re going to organize asset types as mentioned in Alex’s section. He talked about mapping out your income and breaking it down into separate account types, with different tax treatments: retirement accounts, tax-free accounts, and after-tax investment accounts. We can organize these as well as your income streams. Do you have a rental property that generates income? Do you have a pension? What does your Social Security look like?

The Perennial Income Model maps all of this out, allowing us to take a bird’s eye view of retirement and decide where there are opportunities to minimize taxes and improve retirement outcomes. These strategies are not unique to Peterson Wealth Advisors. Any competent financial planner, tax planner, or wealth advisor can implement them. The advantage we have with the Perennial Income Model is the framework that allows us to do these things exceptionally well.

Some of the opportunities include managing your tax brackets. Many of you have probably heard of making tax-free distributions from your pre-tax retirement accounts, like IRA accounts, known as Qualified Charitable Distributions. You may also have heard about taking money out of an IRA and converting it to a Roth IRA, intentionally paying taxes now to benefit later, known as Roth conversions. We can manage the cost of Medicare Part B premiums through tax strategies. Additionally, every retiree has the potential to receive at least a portion, if not most or all, of their Social Security income tax-free.

These are some opportunities to be aware of in retirement. There are also landmines to avoid, such as underpayment penalties and Required Minimum Distributions. You have to take money out of your retirement accounts starting at age 72. One common issue is people reading about Roth conversions and how they are a great idea, but without a full understanding of their income projections, they convert too much and unnecessarily pay taxes. Penalties for not taking Required Minimum Distributions can also be an issue. If your income is too high, you may have to pay more for Medicare Part B premiums. Capital gains taxes can also vary significantly based on when you sell an asset and how long you’ve held it, affecting whether you pay a high or favorable tax rate.

Proper planning can prevent paying extra taxes on Social Security income that you might otherwise avoid. With the foundation set, let’s take a look at a retired couple. This couple, as shown on the screen, has a retirement portfolio of approximately $1.2 million in IRA assets and about $300,000 in a brokerage or trust account, totaling $1.5 million. They are ready to retire and also have a pension that will start at age 65, along with Social Security income. How can we map this out?

Here’s the battlefield: the scope of their retirement. Knowing the laws today and what income looks like now and in the future, what can we do? What are the opportunities? First, we have an opportunity at the beginning of retirement where these retirees have a couple of years. Even though their pension and Social Security are not starting for a couple of years, we have the visibility to know they can retire sooner than when these benefits begin.

Because of their investment portfolio makeup, we know we can draw from their already-taxed portfolio. This will facilitate Roth conversions, moving money from their IRA to a Roth IRA, so that money can be enjoyed later in retirement tax-free. With the Perennial Income Model, we can project a legacy for this retired couple, leaving a legacy for their children and grandchildren to support education and service, which is important to them. How much better to leave a legacy that is completely tax-free to maximize that gift for their family?

Now, the way we do this is by living on after-tax assets, allowing them to make Roth conversions at very low tax rates. While this couple is charitably inclined and will make donations to their church and other organizations for the rest of their lives, we must ensure not to convert too much into a Roth IRA. Instead, we map it out and rightsize the strategy so they don’t miss out on making tax-free transfers from their IRA once they reach age 70 and a half for the rest of their lives.

This strategy reduces the amount of taxes they pay on Social Security, lowers their tax rate, and ensures they are not forced to take out extra money from their IRA that they don’t actually need.

So what does this all look like? If we were to summarize it, I put this table together, looking at someone who is a Utah taxpayer. We are examining the federal and state tax benefits from implementing the strategy based on the information for this couple. By managing their tax brackets, using Qualified Charitable Distributions, and implementing a smart, right-sized Roth conversion strategy, the Perennial Income Model has helped us save this client over $500,000 in tax expenses over the course of their retirement.

In summary, to put this all together, the Perennial Income Model allows us to do tax planning in a way that it really ought to be done—avoiding mistakes, taking advantage of opportunities, and doing it at the time and place of our choosing when it’s most advantageous to the retiree. I’ll turn the time over to Scott now.

Conclusion (56:50)

Scott Peterson: Great. Thank you, Mark. Well done. Advisors, you know, we’re very fortunate. Living and being based in northern Utah, we have UVU, which I think has the best financial planning program in the nation. We also have BYU. Whenever I need a new employee, I can contact the professors of either BYU or UVU, ask who their best and brightest are, and we bring them here.

You have to remember, I turned 60 yesterday. So I’m not just thinking about my clients; I’m thinking about myself also—who’s going to manage my money when I decide I don’t want to do this anymore? I have the best and the brightest, as you’ve seen, working for our company, and I’m very thankful for them and all they do for our clients.

So let’s talk a little bit about the Perennial Income Model to wrap this up.

1. The Perennial Income Model is goal-specific. 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 stream.
2. It creates a framework for investing. Because you have a goal-specific plan, you know specifically how to be invested, the purpose of your investments, and when to sell your investments. It allows you to invest with confidence. We have found time and again that a plan is the antidote to panic. A time-segmented plan aligned with a program to harvest gains, as we talked about earlier, reduces investment risk if the plan is followed. I honestly don’t know how one would go about determining how to invest retirement money without having a plan like the Perennial Income Model. Again, what we see is a lot of rule-of-thumb advisors saying, “Yeah, well, you know, let’s put half in stocks and half in bonds.” There’s no idea as to how to harvest the money and what to do when the markets go down, where to take income from. This creates a framework for investing.
3. It provides a distribution framework. You know how much money you can and should take out of your investments. The plan not only helps with investment discipline but also helps with distribution discipline. It helps you monitor your own behavior. It allows you to spend with confidence. Additionally, it helps you know which account to take your money from for the maximum tax benefit.
4. It creates a framework to recognize and manage risk. Your greatest short-term risk is stock market volatility, and your greatest long-term risk is inflation. The time-segmented plan addresses both these risks. Less volatile investments provide for immediate income needs, while your more aggressive, higher-earning investments keep up with inflation in the long run.
5. There are additional benefits we didn’t anticipate when we created this plan back in 2007 that some of our advisors have talked about. It works as a bad luck insurance policy. I think Daniel covered this well. Some of you may know people who were unfortunate enough to retire in 2007, right before the financial crisis of ’08 and ’09. Remember what happened back then? Stocks plummeted 50%, and many retirees were forced to sell their equities at a loss just to provide for necessary retirement income. These retirement accounts were devastated during this time period. If you happen to be one of those unlucky people who retire at the beginning of a bear market, you are protected by having the Perennial Income Model in place. Your income will not come from equities, giving time the opportunity to work on your behalf, allowing your equities to rebound as time goes on.
6. It also protects you from your older self. I’ve been working with retirees for over 35 years, and I’ve seen it time and time again. We are not as cognitively sharp in our older ages, and we’ve found tremendous help in having our clients follow the same plan throughout their retirement as they age.
7. This ties into the next point: it will leave your spouse with a plan to follow upon your death. I can’t tell you how much comfort it brings to a surviving spouse to know that there’s a plan in place. They will follow the same plan they’ve been following for years as a couple, without shaking things up or moving things around. We’ll just keep the plan going that’s been working well for them for years.
8. And lastly, there are tax reduction strategies available to the retiree that can significantly reduce their tax burden. But these tax opportunities don’t happen by accident. They have to be carefully planned. We found that the projection of future income that the time-segmented approach provides is a game changer when it comes to tax planning. By thoughtfully mixing the various accounts that are taxed differently from each other—such as Roth IRAs, IRAs, and after-tax brokerage accounts—you can really enhance your tax efficiency. We do this because we can map out your income over a long period of time.

Now, I just want to conclude and say, as a company, we realized that we were given something very special when we created the Perennial Income Model back in 2007. In it, we have a retirement income plan that has exceeded every expectation, benefiting hundreds of our retired families in ways we could not have originally imagined.

The Perennial Income Model provides a framework for investing, distributing, tax planning, and risk management. It helps coordinate and maximize pensions and Social Security benefits. It provides a buffer from having to liquidate stock-based equities during negative markets. Finally, it provides guidance to the aged and gives direction and reassurance to the surviving spouse if you follow its precepts.

So I just want to thank all of you for attending today. We appreciate the time you spent with us. Whether this was a good review or a new concept, we trust that you benefited from our information. Again, I’d like to give a shoutout to my colleagues. I am thankful for their contributions today and for their daily efforts in taking care of our retirees.

In conclusion, tomorrow we’ll send out an email to everyone who registered for this webinar with a recording that will be available to rewatch for the next couple of weeks. Also, if you’d like a copy of my new book, you can head to our website to request one or email info@petersonwealth.com. If you are a client of ours, you can simply pick up a book the next time you’re in our office, and we’ll have one set aside for you.

I’m sure many of you have questions about how your personalized Perennial Income Model would look. We offer complimentary consultations, and in tomorrow’s email, we will include a link to our calendar to sign up for a time if you want to discuss what your Perennial Income Model would look like in your situation. If you’re an existing client and would like to review your Perennial Income Model with your advisor, please reach out to your respective advisor or call our office, and Becki will help you set something up.

At the end of this webinar, we’ll be asking you to take a short survey because we always appreciate your feedback to continually improve our content and future webinars for you. Thank you again for spending time with us today. We hope you have a wonderful day, and we look forward to talking to you soon. Bye.