10,000 Baby Boomer retire each day, and they are all looking for a commonsense approach to create a reliable stream of income from their investments that will last the rest of their lives.
Peterson Wealth Advisors, a fee-only financial advisory firm based in Orem, is a pioneer in the retirement income space as they have created a model for investment management and income distribution for retirees that they call The Perennial Income Model.
Scott M. Peterson, founder and CEO of Peterson Wealth Advisors and creator of the Perennial Income Model says, “The Perennial Income Model is simply an investment plan that is designed to protect retirees’ current income from stock market volatility, while at the same time it protects their future income from the subtle yet devastating effects of inflation.”
Peterson created the Perennial Income Model in 2007, and it is the instrument his company has used with the 650 retired families they work with to successfully navigate the ups and downs of the markets during the past 18 years.
So, how does the Perennial Income Model work? Peterson explains that the Model aims to match the retiree’s current investments with their future income needs. Retirees can’t afford to lose money because they are forced to sell stocks at a loss to provide monthly income during down markets. On the other hand, retirees can’t afford to ignore inflation by avoiding the inflation beating potential that stocks provide.
Peterson goes on to explain the Perennial Income Model by saying, “Short- and long-term investments have different risks, and different objectives. Therefore, the Perennial Income Model divides retirees’ investable assets into six separate investment portfolios called segments. Each segment is responsible for providing income for a five-year period of retirement.”
For example, Segment One provides income for the first five years of retirement. Segment Two provides income for years six through ten of retirement, Segment Three for years eleven through fifteen of retirement, and so on until thirty years of retirement are covered.
By dividing a retiree’s assets into six separate investment portfolios, Peterson says that his team at Peterson Wealth Advisors can then manage each segment of money specifically aligned with the future period for which the segment is responsible for providing income.
Segment One’s responsibility is to provide income for the first five years of retirement which makes stock market volatility the greatest threat to this early income-producing segment. So, money in segment one must be invested in safe, low volatile types of investments. On the other end of the spectrum is Segment Six which has the responsibility of creating income for the years twenty-six through thirty of retirement. Inflation protection is this segment’s challenge. Segment Six needs to be invested in an aggressive growth portfolio that is designed to stay ahead of inflation. Certainly, the money in Segment Six will be subject to volatility but temporary bouts of volatility in an account which won’t be called upon to provide income for twenty-six years is inconsequential.
Therefore, Segment One is conservatively invested, and each subsequent segment becomes progressively more aggressive as the income that each segment is responsible for creating is pushed out over fifteen, twenty and twenty-five years.
Peterson explains, “The Perennial Income Model is a goal-driven investment program. Once the investment objective is reached for a specific segment, it is recommended that the investments associated with that segment be invested more conservatively. We refer to this process transferring more aggressive investments to conservative investments as harvesting. Harvesting adds order and discipline to the investment process which results in better investment returns, lower risk, and less selling based on emotions.”
Peterson says, “there are so many voices competing to capture the attention of the income seeking retiree. Buying an annuity that will never keep pace with inflation is not the answer. Chasing last year’s hottest stock or trying to guess the future direction of the stock market is likewise a fool’s game. We believe that the Perennial Income Model sets our firm apart by providing a retirement income plan that is logical, goal-based, and its success is not contingent upon guessing the short-term direction of the stock market.”
With the Perennial Income Model, Peterson hopes that retirees can be provided with peace of mind knowing that they are following a plan that is designed to provide a consistent flow of inflation-adjusted income throughout retirement with the least possible risk.
To learn more about Scott M. Peterson’s approach to creating retirement income plans using the Perennial Income Model, you can visit this link.