Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13

Plan Well. Invest Smart. Live Better 12 Amidon Avenue, Amesbury, MA 01913 | (978) 388-0020

Creating and Protecting YourCreating and Protecting YourRetirement Paycheck – FindingIncome in Unexpected Places

Using Alternative Investments toPreserve and Grow Wealth

www.ClearViewWealthAdvisors.comClear View Wealth Advisors, LLC

Steve Stanganelli, MSF, CFP®, CRPC®[email protected]

http://www.clearviewwealthadvisors.com/

Plan Well. Invest Smart. Live Better 12 Amidon Avenue, Amesbury, MA 01913 | (978) 388-0020

Today’s Presentation:

1. Living in Retirement: SomeRetirement Facts to Consider

Steve Stanganelli, MSF, CFP®, CRPC®[email protected]

Retirement Facts to Consider2. Practical Tips on Preparing Your

Portfolio for Retirement3. Generating Income from Your

Portfolio4. Limiting Your Risk5. A Sound Strategy for Efficient &

Sustainable Withdrawals

www.ClearViewWealthAdvisors.comClear View Wealth Advisors, LLC

http://www.clearviewwealthadvisors.com/

Steve Stanganelli, MSF, CFP®, CRPC®

– Over 20 years experienceadvising individuals

– Former mortgage banker

Principal of the Firm

– Former mortgage banker

– Graduate of UMass – Lowelland Bentley

– Member of Financial PlanningAssociation

© Clear View Wealth Advisors, LLC. 2010

Who is Clear View Wealth Advisors, LLC?

•Clear View Wealth Advisors, LLC is a Massachusetts-registeredinvestment advisory firm serving individuals, couples and businessenterprises with comprehensive planning and investment services.

•Established in 2010

Clear View Wealth Advisors: The Firm

•Located: Amesbury and Wilmington, Massachusetts

•Primary Goal: To protect client wealth through proactive andongoing planning combined with risk-controlled investing.

•Investment Strategy: Clients win by not losing. A multi-bucketapproach is used combining strategic and tactical asset allocation.The long-term bucket is focused on an absolute return strategythat includes the use of convertible bonds, MLPs and Alternatives.


Retirement Facts to Consider

Living in Retirement: Facts & Concerns

1.) Americans1.) Americans are living longer,are living longer, healthierhealthier liveslives

2.) Today’s2.) Today’s retirees have the most healthy and activeretirees have the most healthy and activeretirement of any generationretirement of any generation


3.) Retirees3.) Retirees face formidable financial challengesface formidable financial challenges

Common Retirement Concerns1.) Income1.) Income

2.) Health2.) Health related mattersrelated matters

3.) Outliving3.) Outliving their moneytheir money

• 1.) Experts¹ estimate 70–80% of pre-retirement incomewill be needed to support a comparable lifestyle

• 2.) Healthcare expenses tend to rise with age

Living in Retirement: The Truth About Retirement Costs

• 3.) Low interest rates affect savings growth

• 4.) Inflation will erode purchasing power

• 5.) Taxes do not go away


1. Source of data: U.S. Department of Labor, Employee Benefits Social SecurityAdministration www.Dol.gov/ebsa

Longer Life Expectancy1.) In 2005, men and women reaching age 65 had an

average life expectancy 82 and 85 years respectively1

2.) A couple reaching 65 today has a better than 50% chancethat at least one of them will be alive until age 90

Living in Retirement: Life Expectancy

that at least one of them will be alive until age 90

3.) The older population (65+) numbered 35 million in 2000,an increase of 3.7 million (or 12%) since 1990

2

4.) By the year 2030, the older population will more thandouble to 70 million


1. 2005 OASDI Trustees Report; Social Security Administration;2. Department of Health & Human Services, Administration on Aging 2005

Longer Life Expectancy1.) The availability of employer-sponsored retiree health

benefits continues to decline

2.) It is estimated that between 30% and 40% of all healthcareexpenses are incurred during the last years of life

1

Living in Retirement: Healthcare Costs

expenses are incurred during the last years of life1

3.) 44% of Medicare beneficiaries need nursing home carewith an average duration of 2–5 years

2

4.) In 2003 the average annual cost of nursing home care was$57,700

3

5.) Medicare does not pay nursing home benefits


1. Source of data:Health Services Research, December 2002.2. Source of data: “New Estimates for Nursing Home Use” Medical Care 2002 Urban

Institute.3. Source of data: Kpplinger’s Retirement Report, March, 2004.

Auto

340%+College Tuition (not including boarding and books)

1978: $6,379 2010: $28,050

1978: $37,229 2010: $88,328

Living in Retirement: Inflation Matters

Source: NADA Industry Analysis Division, May, 2005

Home

116%+1978: $62,500 2010: $235,000

260%+

Source: The College Board, 2005

Source: US Census Bureau, 2005

What Will It Cost to Maintain Your Lifestyle?

Living in Retirement: Inflation Matters

Through the 15 Year Period Ending 2004, Inflation Averaged 2.85%

Be Prepared to Double Your Money If You’re Retired for 25 Years

What 3% Inflation Can DoWhat 3% Inflation Can Do to a $30,000 Per Yearto a $30,000 Per Year


What 3% Inflation Can DoWhat 3% Inflation Can DoStandard of Living?Standard of Living?

to a $30,000 Per Yearto a $30,000 Per Year

5 Year $34,778

10 Years $40,317

15 Years $46,379

20 Years $54,183

25 Years $62,813

1.) Set a Realistic Budget for Your Retirement LifestyleNeeds

2.) Assess Your Risk Tolerance – Trywww.MyRiskProfile.com

3.) Stay Invested But Be SMART in Limiting Risk

Practical Tips to Prepare Your Portfolio for Retirement

3.) Stay Invested But Be SMART in Limiting Risk

4.) Control What You Can: Costs, Emotions & Allocation

5.) Have a Plan for Withdrawals

6.) Don’t Forget About Income Alternatives


Year Number of Bear Markets Percent Decline

1900s 3 46%, 49%, 27%

1910s 3 24%, 40%, 47%

1920s 1 89%

1930s 3 23%, 49%, 41%

1940s 1 24%

Historical Bear Markets: DJIA

1940s 1 24%

1950s 1 19%, S&P 500 fell 22%

1960s 3 27%, 26%, 36%

1970s 2 45%, 27%

1980s 2 24%, 36%

1990s 1 21%

2000s 2 38%, 53%

All numbers are approximate.All percent declines are declines in the Dow Jones Industrial Average.

Generating Income For Retirement

There’s more to diversified income investing than stocks and bonds

1.Bonds: Go Beyond the US

Standard Options: Fixed Income Investments -CDs, Treasury Bills & Bonds, Corporate Bonds, Municipals

1.Bonds: Go Beyond the US

2.Consider Hybrids like Convertible Bonds

3.Add Income-Paying Stocks: US & Foreign

4.Add Master Limited Partnerships


Generating Income for Retirement: Convertibles

Convertibles have the characteristics of three asset classes:

1.Bonds

2.Equities

3.Options


Cumulative Total Returns 12/73 – 6/10

Convertibles Beat Equities Over the Long Haul

Source: BofA Merrill Lynch Convertible Research 6/30/10

An asset class that has been utilized for over 150 years


1 Year 3 Years 5 Years 10 Years

All US Convertibles (VXA0)* 22.64% -6.79% 17.70% 22.84%

Appendix: Convertibles as an Asset Class

© Wellesley Investment Advisors, Inc. 2010Please see Wellesley performance notes in appendix.

VXA0 Underlying Equities* 28.38% -30.78% -6.73% -27.19%

S&P 500 14.43% -26.62% -3.90% -14.77%

Russell 2000 21.50% -23.65% 1.93% 34.99%

Through 6/30/10 *Source: BofA Merrill Lynch Convertible Research 6/30/10

Convertibles as an Asset Class

Get Paid While You Wait

Convertible bonds combine the stated repayment dates andyields of bonds and the upside potential of stocks.

Convertible bonds offer investors the potential to get paidwith interest during market corrections or bear markets whilethey wait for the next market recovery or bull stock market.



Convertible Bond Advantages:

a) Yield advantage over equities

b) Capital appreciation potential

c) Low correlations with stocks and bonds which enhancesdiversificationdiversification

d) History of strong risk-adjusted returns

e) Track record of capital preservation

f) Unlike other types of bonds, convertible bonds have generallyperformed well during periods of rising interest rates

g) Convertible bonds have generally performed well in inflationaryperiods



Who Should Invest in Convertible Bonds?

a) Bond holders seeking less exposure to Treasurybonds, municipal bonds or ‘straight’ corporatebonds with greater potential upside

b) Investors wanting reduced equity exposure withoutgiving up stock market upside

c) Investors looking for a non-correlated asset classfor more diversification

d) Investors fearful of rising interest rates on ‘straight’fixed income products

Year WIA S&P 500 MLV0A0

1995 20.05% 37.58% 24.75%

1996 10.15% 22.96% 14.30%

1997 22.92% 33.36% 18.98%

1998 16.56% 28.58% 8.21%

1999 19.60% 21.04% 44.32%

2000 17.32% -9.10% -11.70%

2001 11.74% -11.93% -3.95%

Performance Record

2002 3.08% -22.06% -4.95%

2003 15.28% 28.68% 25.80%

2004 6.58% 10.88% 8.49%

2005 3.60% 4.91% -0.34%

2006 9.57% 15.80% 12.75%

2007 7.33% 5.49% 4.12%

2008 -11.09% -37.00% -33.02%

2009 36. 58% 26.46% 47.19%

2010 0.12% -6.65% -0.34%

Annualized 11.72% 7.29% 8.11%Annualized returns are from January 1995 to June 30, 2010. Please see performance notes in appendix.

The BoA / ML V0A0 represents the US Convertible Market excluding mandatory convertibles.

All numbers are approximate.


Complete Market Cycle Performance (Annualized):


Convertibles can be structured as a

Core Principal Protected Equity Strategy

Investing with Convertibles

Or an

Enhanced Fixed Income Strategy


What Lost Decade?

What Would Happen to $1 Million Placed in WIAConvertibles VS the S&P 500?

Year % Inc (Dec) BalanceAnnual 5%Withdrawal

1999 1,000,000

2000 17.32 1,173,235 58,662

Wellesley Investment Advisors

Year % Inc (Dec) BalanceAnnual 5%Withdrawal

1999 1,000,000

2000 -9.10 909,000 45,450

S&P 500 Total Return

© Wellesley Investment Advisors, Inc. 2010

2001 11.74 1,245,423 62,271

2002 3.08 1,219,538 60,977

2003 15.28 1,335,634 66,782

2004 6.58 1,352,372 67,619

2005 3.60 1,331,048 66,552

2006 9.57 1,385,530 69,277

2007 7.33 1,412,692 70,635

2008 -11.09 1,193,158 59,658

2009 36.58 1,548,089 77,404

Total Return: 145.63%

2001 -11.93 760,528 38,026

2002 -22.06 563,118 28,156

2003 28.68 688,389 34,419

2004 10.88 725,122 36,256

2005 4.91 722,689 36,134

2006 15.80 795,030 39,752

2007 5.49 796,743 39,837

2008 -37.00 476,851 23,843

2009 26.46 572,874 28,644

Total Return: - 9.10%

Wellesley VS PimcoGrowth of $1,000,000 : January 1995 – June 2010

WIA $5,572,662

Total WIAAdvantage:

90.89%

Convertibles as a Fixed Income Replacement

Sources: PIMCO Total Return Fund A – Ticker Symbol: PTTAXPlease see performance notes in appendix.


All numbers are approximate.

PTTAX$2,919,320

90.89%

How Do Convertibles Perform When TheFed Tightens?

Fed Tightening Cycles


Fed Tightening Cycles

Source: Fed data provided by Deutsche Bank. V0A0 data provided by Merrill Lynch/Bank of America. All numbers are approximate.

Fed Policy Rate S&P 500Merrill LynchV0A0 Index

Start Date End DateDuration(months) Start Value End Value

Interest RateIncrease Change (%) Change (%)

03/29/88 02/24/89 11 6.50 9.75 3.25% 10.38% 11.20%

02/04/94 02/01/95 12 3.00 6.00 3.00% 0.13% -8.46%

06/30/99 05/16/00 11 4.75 6.50 1.75% 6.80% 26.47%

06/30/04 06/29/06 24 1.00 5.25 4.25% 11.58% 8.67%

“If you stay out of stocks, you might miss the rally. If you buy stocks, you mightget creamed in another slump. But convertible(s)…let you have it both ways.

Making good selections from among convertible securities with so many variablesis challenging, but very rewarding. Finding the right convertibles is like a

Quote from Forbes Magazine

Notable Convertible Quotations

is challenging, but very rewarding. Finding the right convertibles is like agame where you can win or, alternatively, get your money back – withinterest.”


Value of Dividends in Retirement• Historically Higher Yields than Bonds: 3.54% vs 3%

• Historically Higher Total Return than Bonds – Dividend PayorsBenefit from Stock Appreciation Potential

• Historically Higher Income, Price Appreciation & Total ReturnCompared to S&P 500 Stock Index: 11% vs 8.4%

Generating Income: Dividend Payers

Compared to S&P 500 Stock Index: 11% vs 8.4%


Annualized TotalReturn Period

DividendAristocrats Index

S&P 500

1990-94 12.58% 10.4%

1995-99 19.48% 28.54%

2000-04 9.79% -2.29%

2005 – 9/2009 2.32% -0.08%

1990 – 9/2009 10.97% 8.41%

Alternatives Provide Income & Protection• Historically Provide Protection Against Inflation

• Cash Flows

• Typically Low Correlation to Stocks

Generating Income: Alternative Investments

Types of Alternatives to Consider• Real Estate Investment Trusts (Global)

• Commodities

• Master Limited Partnerships (MLPs)

• Managed Futures


Master Limited Partnerships (MLPs)–

The Toll Roads for Commodities• What Are They?:Build and Operate Pipelines and Distribution

Networks for Commodities Like Oil and Gas

• Cash Flows: Predictable Cash Flows Not Impacted By Commodity

Generating Income: Master Limited Partnerships

• Cash Flows: Predictable Cash Flows Not Impacted By CommodityPrice

• Inflation Hedge: Over Time Distributions Have Grown OutpacingInflation

• Performance: Strong Historical Record Compared to Other Assets

• Tax Preferred: Distributions Considered Return of Capital


Master Limited Partnerships (MLPs)–

Solid Income Producing Asset Class

Generating Income: Master Limited Partnerships


stions.

1. Add Up Your Income Sources (Social Security, Pension, Jobs)

2. Consider Your Retirement Expenses

3. Calculate the Gap (if any)


Creating Your Paycheck: A Multi-Bucket Approach

3. Calculate the Gap (if any)

4. Have a Solid Plan for Taking Money Out – Be Tax Wise!

5. Stay Globally Diversified

6. Have a Cash Flow Reserve Bucket

Note: See Part 7 of “Road to Retirement”


stions.


When You Start and How Much You Draw Matters

Source: Fidelity Investments. Hypothetical value of assets held in an untaxed balanced portfolio of50% stocks, 40% bonds, and 10% short-term investments and inflation-adjusted withdrawal ratesas specified. Average rates of return for stocks, bonds, short-term investments and inflation arebased on the risk premium approach. Actual rates of return may be more or less. The chart is forillustrative purposes only and is not indicative of any investment. Past performance is noguarantee of future results.

stions.

1. Lifestyle: Rule of Thumb of 4% to 5% of Portfolio

– Pros: Simple

– Cons: May not be sustainable especially in times of a bear market

2. Endowment Spending: Acting Like the Big Boys


Two Options: Lifestyle vs Endowment

2. Endowment Spending: Acting Like the Big Boys

- Pros: Allows for more controlled withdrawals with a built-in “smoothing rule” thatwill work well

- Cons: Takes more time to master; Requires “belt tightening” during bear markets

– This is a blended approach that combines prior year’s spending levels with currentportfolio performance

– Smoothing Rule: 90% is determined by prior year’s spending PLUS 10% from thecurrent portfolio value

– Ties a portion of spending to current portfolio value

– Works especially well at preserving portfolio during periods of inflation


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What You Should Do Next

links.

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• 4.) Call 978-388-0020 or 617-398-7494 for a complimentary MoneyTune Up, Portfolio Review or College Money Assessment

• Call 978-388-0020 to discuss any questions.


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Steve Stanganelli, MSF, CFP®, CRPC® (978) 388-0020 or (617) [email protected]

About Steve Stanganelli, CFP®, CRPC®

Steve Stanganelli is a five-star rated, board-certified financial planning professional who has over 20 years of experience coaching individualsand businesses on ways to improve and protect their personal or business bottom line.

Chief Personal Portfolio Strategist & Money Coach

Steve has worked with numerous individuals and businesses as a mortgage banker, business owner, business finance consultant and now as aCERTIFIED FINANCIAL PLANNER ™ Professional.

His practice encompasses retirement income planning, investment management, divorce settlement analysis and college funding strategies. Heis a published author and regularly presents on these topics to businesses, civic groups and community organizations.

Steve works with a variety of individuals and families with a special focus on Baby Boomer pre-retirees, business owners, corporate executivesand medical professionals.

Steve earned his Master of Science degree in Finance (MSF) from Bentley College with high distinction. He is also an honors graduate of theUniversity of Massachusetts – Lowell.

Steve holds the designations of CERTIFIED FINANCIAL PLANNER ™ and CHARTERED RETIREMENT PLANNING COUNSELOR ™ awarded aftercompletion of extensive, in-depth studying and exam requirements.

Steve is an executive officer of the Greater Merrimack Valley Estate Planning Council. Steve, formerly of Methuen, is a resident of Amesburywhere he lives with his wife, Kristin, a Registered Dietitian, and their infant son, Spencer. He is an avid competitive cyclist.

Clear View Wealth Advisors, LLC is a fee-only state-registered investment adviser.

The firm provides personalized financial planning advice on a broad range of topics with anemphasis on retirement income planning, self-directed IRA strategies, college funding andfinancial aid strategies, and divorce planning and settlement analysis.

Money management tools are available including customized investment programs forindividuals.

We offer a tool kit for money and help people make smarter money moves for life.

About Clear View Wealth Advisors & The Tool Kit for Money

We offer a tool kit for money and help people make smarter money moves for life.

Clear View: Who We Serve

We work with individuals or couples in need of trusted guidance while going through transitionslike a job change, retirement, divorce or other life-changing event.

We strive to make our services accessible to busy professionals and their growing families toassist with retirement planning, elder care or college funding issues.

Footnotes for WIA Convertible Bond Returns1. This presentation reflects only the convertible bond portion of WIA's client accounts. Returns are based on all convertiblebond positions held in accounts of all WIA clients during the periods reflected. Actual client accounts include positions otherthan convertible bond positions. Such other positions are not included in this performance presentation. Accordingly, theactual return of WIA client accounts is different, in some cases substantially, from the performance information presented forconvertible bonds. During the periods reflected, WIA did not manage any other accounts that included convertible bonds intheir portfolios.2. Returns include a 0.00% annual management fee. WIA's standard fee schedule is included in its Form ADV Part II.3. Past performance is not indicative of future results.4. No representation is made that the investor will obtain similar results to those shown above. The performance presentedmay not be representative of investments held in any one client account or performance realized in any one client account. Aninvestor's actual performance may differ from the performance presented above due to timing of investment, contributions and

Wellesley Investment Advisors - Footnotes

investor's actual performance may differ from the performance presented above due to timing of investment, contributions andwithdrawals. Performance does not reflect the effects of taxation, which result in lower returns to taxable investors.5. This report is meant for broad discussion purposes only, and is not intended as a recommendation to buy or sell any security.6. An investment in convertible bonds involves a risk of loss. The value of an investment in convertible bonds may decrease aswell as increase.7. WIA's convertible returns have been calculated using the methodology set forth below. Such methodology includes severalassumptions that result from systems limitations on aggregating the convertible bond portion of multiple client accounts.Although information has been obtained from and is based on sources WIA believes to be reliable, WIA does not guarantee theaccuracy of the information, and it may be incomplete or condensed. Returns do not reflect reinvestment of interest anddividend income.

8. Methodology for WIA Convertible Bond Returns:(a) Listed the market value of all convertible bonds held on the last day of each month.(b) Determined the weight of each bond holding in the portfolio (individual bond value / total bond value).(c) Determined each bond's return for the month (monthly interest earned plus / minus monthly price change).(d) Assumed that a bond entered the portfolio on the first day of the month in which it was first purchased.(e) When a bond is completely sold out of the portfolio, its prior month end value is adjusted to reflect the final sales price.(f) Weighted each bond's return for the month by the bond's weight in the portfolio.(g) Summed each bond's weighted return for the month to get the portfolio's return for the month.(h) Compounded monthly returns to calculate annual return.

Wellesley Investment Advisors

Other FootnotesOther Footnotes- A complete market cycle is defined either by a top-bottom-top or bottom-top-bottom pattern in the stock market. In the WIAanalysis, the S&P 500 was used to define the market cycle of the stock market.

- Bond & Average Credit Quality reflects the higher of the ratings of Standard & Poor’s Corporation, Moody’s InvestorsService, Inc., and Fitch. If a bond is not rated by any of these organizations, Wellesley Investment Advisors uses theirproprietary credit rating system to demonstrate the credit quality of convertible bonds. Ratings are relative, subjective and notabsolute standards of quality.

- Alpha statistics provided by Morningstar, Inc. as of June 30, 2010.

Appendix: A Fairly Balanced Universe of CB Issuers

Source: BofA Merrill Lynch Convertible Research 6/30/10



Convertibles From an Issuer Viewpoint:

Less dilutive than common stock offering, issuer monetizes volatility

Less costly than pure debt offering, and potential conversion tocommon by holders if equity performs no principal repayment

Expand investor base – flexibility, less restrictive covenants


Source: Barclays Capital

Expand investor base – flexibility, less restrictive covenants

Recent innovations provide tax and EPS advantages

Exchangeable structure allows for monetizing a stake in anothercompany

• Defers capital gains until maturity

Part of the classic financing chain


Why convertibles cannot be replaced with Equities, Bondsand Options:

a) Unlike Bonds and options, many convertible bond holders canobtain a certain amount of underlying shares in exchange for theconvertible bond structure at any time.

b) Unlike options, most convertible bonds have dividend and takeoverb) Unlike options, most convertible bonds have dividend and takeoverprotection.

c) Convertibles offer optionality for companies where there is no liquidoption market.

d) Convertible bond market tendency is to offer investors theopportunity to buy volatility exposure at a relatively cheap price

e) Convertible bonds offer issues “suboptimal” call features

Source: 2007 UBS Global Asset Management (Americas) Inc.


Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13

Economy & Finance

Transcript of Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13