Retire with confidence with a different approach to income

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Retirement isn’t supposed to be stressful, but it can feel that way when trying to generate an income that will last. That’s why veteran retirement planner Daryl Diamond is a proponent of the Paycheque Portfolio™ approach. The idea is to build a sustainable stream of income while keeping your hard-earned capital intact.

“The basic concept is the income generated from your investments will be used to support your income needs,” says Mr. Diamond, chief retirement income strategist at Dynamic Funds. “This easy-to-understand strategy essentially enables retirees to receive a paycheque each month and not worry about selling investments during down markets.”

Mr. Diamond, author of the book Retirement for the Record: Planning Reliable Income for Your Lifetime, has used the Paycheque Portfolio approach for more than a decade. He says helping Canadians retire comfortably, without worrying about running out of money, is partly a matter of shifting their mindset to spending income, not capital.

“For many retirees, the markets can fall dramatically, and that can be anxiety-inducing,” he says.

Those fears can lead people to make decisions that have long-term negative consequences for their retirement finances. “The worst thing people can do is sell when markets go down.”

That can happen with poorly devised retirement income plans and portfolio construction. “And it’s not like you can just dust off the resumé at age 77 and go back to work either.”

That’s why Mr. Diamond has relied on target-income mutual funds and exchange-traded funds (ETFs) paying monthly distributions as the core of portfolios for people in or approaching retirement.

He has used different fund providers over the years but liked Dynamic’s history of performance and range of options. That record was a key reason why he approached Dynamic last year when the firm launched its Retirement Income Centre, an online resource containing retirement insights and perspectives for both investors and advisors.

“I said, ‘What you’re talking about – spend income and not capital – has been our mantra for the past 15 years, and we’ve used your offerings to great effect,’” Mr. Diamond notes.

A Paycheque Portfolio includes equities to help keep ahead of inflation as well as multiple income funds designed to pay monthly distributions, which investors then use to pay for their regular expenses.

Typically, the expected income generated by a fund is expressed as an annual yield. Funds will offer different yields. For instance, one fund may have an annual yield of 6.8 per cent, involving slightly higher risk, while the other may be less risky, yielding about 4.8 per cent.

“So, if someone had $1-million in their portfolio and required $52,000 a year of income, you would aim for a yield around 5.2 per cent,” Mr. Diamond says.

Regardless of the mix of income funds, the goal is to provide a reliable yield, generated mostly or entirely from income so retirees don’t have to sell fund units to supplement their cash-flow needs.

“This income is not guaranteed, but in 15 years of using these funds, we have never experienced a reduction in distributions,” Mr. Diamond says.

Beyond generating consistent income, a key benefit for retirees and their advisors is that they don’t have to make decisions to buy or sell holdings to maintain that cash flow. That’s left to the fund managers who strive to meet expected distributions from a mix of bonds, dividend stocks, real estate investment trusts and other income-producing assets.

“Think of it like owning an apartment block and living off the rent,” Mr. Diamond says. “The value of the apartment property can go up and down, but the rent remains constant.”

While providing more income certainty for retirees, the Paycheque Portfolio approach benefits those who are approaching retirement too.

“Because you’re reinvesting distributions prior to retirement, in tough markets like 2022, when stocks and bonds fell at the same time, you actually end up owning more units leading to potentially more income when markets recover,” Mr. Diamond says.

And once someone is retired, no matter what markets do, they still get that paycheque every month.

“From my experience over the past 15 years, yes, markets went down, but the paycheque still came,” Mr. Diamond says.

He notes that while account values did fall during down markets, they eventually returned to where they had been prior to markets selling off and continued to exceed previous highs.

Mr. Diamond says that during your working years, do-it-yourself (DIY) investing may be an option. However, when it comes to converting accumulated assets into sustainable, tax-efficient income, DIY just isn’t feasible. Retirement planning is just too complicated.

He notes that it’s essential to have an experienced financial advisor with this expertise to guide investors through the process of building a viable retirement plan. While it may sound obvious, people only retire once, he says, and they have to get it right.

Learn more about how Dynamic’s Paycheque Portfolio approach can help deliver peace of mind for retirees and those on the cusp.

Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.