Using the Core 4 Approach in Retirement Planning

Troy Sharpe: What is the Core4? And how can it help improve your retirement confidence, your security, and the longevity of your nest egg while reducing market volatility?

Hi. I’m Troy Sharpe, CEO of Oak Harvest Financial Group, author of the upcoming book Core 4,  host of The Retirement Income Show, and Certified Financial Planner professional. When we talk about retirement planning, we have to understand that the goals that we have in retirement  are so many more than when we were in the accumulation phase, in the working years.

You work your entire life– the earning years, the working years, you get to the, “I’m almost  stopped working years,” and then you get to the, “I’m done working years.” Once you cross over to, “I’m no longer working,” and those paychecks stop, you’ll have to develop your own retirement income  plan, your own tax strategy. Figure out when to take Social Security, what about Medicare?

Rising healthcare costs, inflation. All of these different things you never had to worry about in the working years. Most financial professionals are telling you, “Well, you need a portfolio of 60% stocks and 40% bonds,” but what we’re telling you is you need more tools than that because you have more goals. Our framework for integrating retirement planning– helping you figure out the taxes and social security, and medical expenses, with investment management is what we call the Core4. The tools that we want to incorporate, they are more than in the working years, but they start with, first and foremost, what we call “pillar one,” which is the peace of mind allocation.

You need to have some money in retirement that you’ve set aside in a bucket that you know is going to be principal protected, it’s going to provide reliable income because the purpose of the Core4 is to generate multiple streams of income in retirement. When a new couple or someone comes in to see us for retirement planning and investment management, we talk about the Core4 because one of our core tenets is that we need multiple streams of income in retirement.

The more income we have coming in from more sources– different, various sources, the more secure we found that our clients feel over the long course of their retirement. This starts with having some money that we set aside in pillar one, the peace of mind allocation, for reliable income streams, principal-protection. We’re expected to earn 4% to 6% on this money. The goal is not to hit home runs in the peace of mind pillar, it’s to not lose big sums of money. We’re not trying to make 10% a year, we’re trying to avoid losing 10% a year.

We want to target between 4% to 6% average returns here, but we need the money to be safe from market risk. This is the peace of mind pillar where we want to put some money there, we want to generate some income, and we want it to be secure from market volatility. Pillar two is what we call public real estate. These are REITs, Real Estate Investment Trusts, that you can buy in the public markets.

Now, the reason why we believe in investing in real estate in the public markets is because we can generate income. Typically, we see 4% to 5% to 6% income streams coming off this pillar two real estate bucket, but we don’t have to be a landlord.  We don’t have to get calls at 3:00 AM. We don’t have to fix washers, and dryers, and put new roofs on the home. We get professional real estate management here. The investment itself, typically, historically has very low correlation to the S&P 500.

Real estate is a potential inflationary hedge. If we get higher inflation, real estate can hedge us or protect us, historically, from that risk, so we want some money here in pillar two. Now, one thing. If you have a lot of real estate– maybe you have a lot of rental homes or a private real estate or a beach home here and another home here, and your primary residence, we’re probably not going to allocate too much money into pillar two for you because we want to take into account your “held away” or your outside assets when customizing your retirement plan.

Pillar three, our dividend stocks. I’m a big believer in dividend stocks because when companies pay you dividends, which is essentially a share of the profits that they provide to you simply for owning that stock, the income you receive is independent of the stock market or that particular stock’s price fluctuation. If the stock goes up, excellent, we’re getting appreciation in our investment. If the stock goes down, well, let’s give it time to rebound, but the dividend won’t change simply because the stock is fluctuating in price.

Many companies have a long history of increasing their dividend payments every single year. A subcategory of dividend stocks is what we call “dividend aristocrats.” These are companies that for 25 consecutive years have increased the dividend payment that they pay out to shareholders. It’s like having a promotion or a raise in your paycheck every single year.

Now, dividends are not guaranteed, and the board of directors decides, each year, how much dividend they’re going to pay, but traditionally, if a company has increased their dividend payments every single year for many years, they want to maintain that. They want to continue to increase it if they can. Dividend stocks are an excellent way to generate some income in retirement.

Historically, they are also less volatile than growth stocks or some of these high-flying stocks out there that go up really big and down really big. A good way to generate income in retirement is to consider investing in some dividend stocks, and that’s why it’s part of our Core4 framework. Finally, the last part here, mutual funds and exchange-traded funds. That’s what ETF stands for, Exchange-traded Funds.

We can create relatively low-cost opportunities inside these funds. We can invest across different sectors and different industries, even global opportunities. Funds and ETFs, mutual funds and ETFs can generate interest and dividends that we can live off of in retirement or we can reinvest those, the interest and the dividends, to accumulate more shares. When we talk about allocating the money in retirement, we need more tools than simply stocks or bonds because we have more goals in the retired years than we did in the working years.

The Core4 in Oak Harvest Financial Group is the framework for integrating the retirement planning with the tools needed to help you have a confident retirement. If you have a friend or family member, make sure to share this video with them so they can learn more about the Core4 and understand they need to introduce more tools than just stocks or bonds to have a successful retirement.

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