A Protiree's Catch-22

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Life is good for me - I am perfecting my protirement by performing my passions and producing and playing as I please. I am involving myself in all three of my big F passions of Fine-art photography, Family, and even Financial planning; not as a paid practitioner any longer, rather, through my book ADVOCATE PLANNING, To Do What You Love To Do, and The Love Priorities blog. My book and blog are founded on the premise that doing the next best step in the process of living your passions is the ultimate in financial planning.

Champlain Rainbow Canon EOS IDS Mark III 160mm 1/20 sec f14 ISO 125 B&W and color

The Catch-22 relates to funding passions while you no longer have "earned income" and you have to dip into investments. The Catch is having near-term (5 to 7 years or so) cash needs in stable investments so you don't take needless investment market risks on investments that you are going to use soon. Markets in the short run can go anywhere, like the 50% declines we saw in equities in the early and late 2000's!. Short-term bonds are usually the investment of chose for stable fixed income, however there has been no yield to speak of on short-bonds for quite some time now, and they carry the risk of losing value as interest rates rise. In other words - the safe investments are risky and provide little yield. Where are the times when a retiree could put there money in an interest bearing vehicle and expect a return of a couple percentage points above inflation?

I have been thinking about this no-win situation for a long time. As a practicing planner I struggled with this asset allocation dilemma for retirees. Following is how I am now dealing with it for my situation. Mind you, this is how I am dealing with it for me. Everyone is unique. You need to talk to your advisors regarding your situation. Don't follow my thoughts without knowing applicability to your situation and committing to the process. 

To maximize my fixed cash flow, I am taking individual stocks managed by an independent money manager and putting them to work in private rent producing real estate (a photo studio) established to produce a 6% return and a return of principle over 20 to 25 years. This accomplishes minimizing the cash needed from marketable investments and involves my passions of photography and family. I will also get a chance to use the property to print images! Certainly, it carries risk, but I feel comfortable with the investment risk and personal involvement.

Secondly, I am investing, an amount equalling roughly six years of cash flow needs from investments, in stocks when the S&P is higher than it's 10 and 12 month moving average and in Cash equivalents when the S&P is lower than the 10 and 12 month moving average. Past experience is no guarantee of future results, but this approach was very defensive and useful during the major declines in the 2000's. Defensive in down markets and return in up markets is what I am after. It is not a perfect answer to the Catch-22, or no-win situation for the retiree that needs cash from investments. For me, it is an approach that I can live with, until fixed income rates can more predictably result in returns that will beat inflation by a couple percentage  points.