Securing Your Future | Brynmawr Wealth

Securing Your Future: Global Asset Allocation for a Tax-Advantaged Retirement Income

For many retirees, a comfortable retirement relies on a steady stream of income. While Social Security provides a vital foundation, it’s often not enough to cover all living expenses. Our approach to retirement income is about building a robust and diversified portfolio that provides dependable income for life. By utilizing a Global Asset Allocation strategy, we look beyond domestic borders to tap into a wider array of income-producing assets, creating a resilient "income floor" to supplement your Social Security benefits.

The Pillars of a Tax-Advantaged Income Portfolio

A successful retirement plan is built on strategic asset allocation and a keen understanding of risk management. We believe in a "Total Return" approach, which focuses on both the income your investments generate (dividends, interest) and their long-term growth. To achieve this, we use a "Bucket Strategy" to manage the critical risks of retirement.

The "Income Bucket": This portion of the portfolio is dedicated to generating immediate and consistent cash flow. We can build this using a diversified mix of high-quality dividend-paying stocks from around the world, as well as a range of bonds, including U.S. Treasuries and international corporate bonds.
The "Growth Bucket": To combat inflation risk, this bucket is designed for long-term growth. It holds a blend of domestic and international equities, carefully chosen to grow over time and ensure your portfolio's purchasing power keeps pace with rising costs.
The "Cash Bucket": This is your emergency fund, holding enough liquid assets to cover 1-3 years of living expenses. This is the ultimate tool for managing sequence of returns risk, allowing you to avoid selling assets during a market downturn.

Maximizing Income with Global Closed-End Funds (CEFs)

Beyond traditional stocks and bonds, Closed-End Funds (CEFs) can be a powerful tool for generating substantial income. Unlike mutual funds, CEFs trade on exchanges and are known for their high distribution rates. A global strategy can utilize CEFs that invest in a wide range of assets, from international bonds to global real estate.

The Premium/Discount Advantage: CEFs often trade at a discount to their underlying Net Asset Value (NAV), offering a unique opportunity to acquire a portfolio of assets for less than their true value.

Managed Distributions: Many CEFs use a managed distribution plan to pay a consistent, often monthly, cash flow to shareholders. This can create a predictable income stream that can be a welcome supplement to your Social Security check.
The Use of Return of Capital (ROC): It's important to understand that a CEF's distribution may include Return of Capital (ROC). ROC is a portion of the distribution that is not from income or capital gains; it's a return of your original principal. While not immediately taxable, it reduces your cost basis, which can lead to a larger taxable gain when you eventually sell the shares. When used judiciously, ROC can be a valid part of a fund’s distribution strategy, but consistent, significant ROC can also be a warning sign that the fund is overpaying its earnings.

Alternative Strategies for Enhanced Income and Growth

To generate even more substantial current income, some investors utilize alternative investment strategies.

Covered Call Writing: This strategy involves holding a stock and selling call options on that same stock. The premium received from selling the option provides a source of regular income. This can be particularly useful in portfolios focused on high-quality dividend stocks, as it adds an additional layer of income on top of the dividends.
Ladders of Autocallable Notes: These are debt instruments with a variable maturity that are designed to be "called" or redeemed early if the underlying asset's price meets a specific condition. By creating a ladder of these notes with staggered call dates, investors can build a predictable income stream with a defined maturity schedule, similar to a traditional bond ladder, while potentially earning a higher yield.

Diversifying with Modern Alternative Asset Classes

To further diversify a portfolio and potentially provide both growth and income, modern fund structures allow access to alternative asset classes that were once only available to institutional investors.

Cryptocurrency: While known for volatility, cryptocurrency has emerged as a new asset class. Investors can gain exposure through ETFs and other funds, offering a way to diversify a small portion of the portfolio for potential long-term growth.
Private Equity and Private Credit: Traditionally illiquid, these assets are now accessible via Closed-End Funds and ETFs, which invest in portfolios of private companies or loans. Private credit, in particular, can offer a higher income stream than traditional bonds due to the nature of its loans to private companies.
Real Estate Investment: Beyond physical property, investors can use Real Estate Investment Trusts (REITs) to invest in a portfolio of income-producing real estate without the complexities of direct ownership. REITs are often included in asset allocation funds and are known for their high dividends, making them a cornerstone for many income-focused portfolios.

Asset Allocation Funds: The "One-Stop Shop" for Diversification

For investors who prefer a simpler, more hands-off approach to managing a fully diversified global portfolio, Asset Allocation Funds provide a solution. These are single funds, often structured as ETFs or Closed-End Funds, that hold a complete portfolio of various asset classes. They are professionally managed to maintain a target allocation to a mix of domestic and international stocks, bonds, and alternative investments like private credit or real estate.

By investing in just one or two of these funds, an investor can achieve instant diversification and gain exposure to a global mix of income-producing assets. These funds not only provide regular income distributions but are also designed to grow and appreciate over time, making them a strong fit for a retiree's portfolio focused on both current income and long-term sustainability.

The Tax-Advantaged Advantage

A dollar of income in retirement is not just a dollar—its value is determined by how much is left after taxes. Our strategies focus on building an income stream that is as tax-efficient as possible.

Strategic Withdrawal Order: We can help you navigate tax-conscious withdrawals from different account types (taxable accounts, Traditional IRAs, Roth IRAs) to minimize your annual tax bill.
Municipal Bonds: For high-income retirees, investing in municipal bonds can provide a source of federally tax-exempt income, and in many cases, state and local tax-exempt income as well.
Roth IRA as a Tax-Free Spigot: Utilizing a Roth IRA can provide a source of tax-free withdrawals in retirement, giving you unparalleled flexibility and a critical buffer against future tax increases.

Retirement Portfolio