The Retirement Income Challenge

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Many financial strategies focus on building wealth, but very few give you a clear plan for how to spend it. Often, the default approach is to simply sell stocks and bonds every month to meet spending needs.  The result? Figuring out how much you can safely spend can be complicated, and investors are justifiably sensitive to the volatility of the market prices of their investments.

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What if there were a way to turn part of your portfolio into predictable monthly cash flow without sacrificing flexibility or efficiency?

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A Bond Ladder: The Retirement Income Answer You’ve Been Looking For

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It’s easier than you may think to generate income-that's exactly what a bond ladder is designed to do.  If you’re not familiar with bond laddering, you can learn more here.

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A bond ladder gives you three major advantages over traditional retirement drawdown strategies:

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1. Predictable Cash Flow

Because you know when your bonds mature and how much you’ll receive, you don’t need to sell stocks in a down market to cover your expenses.¹

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2. Built-In Flexibility

It’s easy to adapt over time.  For example, you can reinvest extra cash flow if you don’t need it all for spending.  Or if you have an unexpected expense requiring extra cash flow, you can simply sell a little bit of your bond ladder to cover it, because it’s liquid!

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3. Tax Efficiency

Most ways of getting money out of your portfolio can result in a big tax bill.

In contrast, generating cash flow from a bond’s principal payment at maturity is tax-free!

So if you hold a bond ladder, with a maturity each month, then a significant portion of your monthly cash flow will be tax free.

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Should You Plan to Live Off Bond Interest in Retirement?

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You may have heard the advice: "Live off the interest and never touch the principal.” But that’s outdated—and often harmful.

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With a bond ladder, it’s not only okay to spend principal—it’s part of the plan.

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If you only spend the interest, you’re paying a lot of taxes, and the value of your principal is slowly being whittled away by inflation.  For example, if you own $1 million of bonds, after 10 years of 2% inflation, it’ll be worth only $800K in real terms—meaning you’ve effectively lost $200K!

Note: Exhibit illustrates the value of $1 million dollars in cash assuming that annualized inflation realizes 2% during the various time horizons shown. This is a hypothetical scenario that makes no other assumptions.

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If you use a bond ladder to create reliable cash flow for a known time horizon, spending principal doesn’t need to be cause for concern. To the contrary, it’s a deliberate strategy designed to maximize your spending power and minimize your tax bill.

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Want to Keep Growing Your Nest Egg?  

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Highly-rated bonds are generally one of the lowest-returning assets in an investor’s portfolio.  So if you want to grow wealth, why not spend from your low-returning assets so your high-returning assets can grow untouched?

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For example, suppose you are invested in a portfolio of 60% stocks and 40% bonds.  Instead of selling a mix of your stocks and bonds, consider replacing your bonds with a bond ladder and using them to fully support your spending needs. That way, you can try to avoid realizing any capital gains by selling stocks and instead pursue long-term growth.

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In short, give yourself the best of both worlds:

• Reliable spending money for now
• A growth strategy for later

That’s how you pursue both financial security and wealth creation.

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Who Is a Bond Ladder Right For?

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This approach works well if you:

• Are in or approaching retirement
• Want to protect spending power from a market crash
• Prefer tax-efficient strategies

It’s especially powerful if you want a predictable spending power—a permission slip to spend more time enjoying retirement and less time worrying about how to pay for it.

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Final Thoughts: Simplicity That Works

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A bond ladder isn’t flashy. It doesn’t rely on market timing, and it won’t win cocktail party conversations. But it works—quietly, reliably, and tax-efficiently.

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If you’re looking for a retirement income plan that's boring and predictable, so you can get excitement from the rest of your life, the bond ladder just might be your best next step.