For Release: August 13, 2008 

DENVER, Colo.… The use of four distinct investment accounts can produce a higher percentage of income withdrawals to fund retirement, compared with more traditional retirement-withdrawal strategies, contends an award-winning article in the August 2008 issue of the Journal of Financial Planning, published monthly by the Financial Planning Association^® (FPA^®).

The article, "Income-Harvesting Strategy: Achieving Inflation-Adjusted Income from a Lump-Sum Asset," by Zachary S. Parker, CFP^®, LUTCF, of Securities America, Omaha, Neb., won a Judge's Grant in the 2007 Financial Frontiers Award competition. A Judge's Grant is designed to further develop an author's research.

To date, most income-distribution strategies proposed for retirement have been based on withdrawing an initial fixed percentage from the retiree's portfolio and then adjusting that initial amount each year for inflation. The studies typically have found a "safe" withdrawal rate of around 4 to sometimes 5 percent, depending on the mix of assets in the portfolio, actual portfolio returns and number of years withdrawals must be made.

Parker writes, however, that "Many income-distribution strategies can be negatively affected by market volatility or a series of negative returns early in the plan. The goal of income harvesting was to think outside of the box to identify ways to increase the amount of income a client can withdraw without reducing the overall success rate."

Parker says his method produces a 90 percent success rate for an initial withdrawal rate of 5 to 6 percent with annual inflation adjustments of 3 percent—and leaving the retiree with two times his or her original principal. To achieve this, Parker uses four investment accounts:

1. Income guarantee account. This is a fixed account of bonds, certificates of deposit, immediate annuities, or money market accounts that funds the retiree's annual retirement needs. In the author's example, out of $1 million in retirement funds, $256,000 is invested in this account. The account in turn is replenished by funds from two equity accounts.
   
   
2. Equity withdrawal account. This account, invested primarily in domestic and international equities, normally pays annually into the income account 7.5 percent of the equity account's value. It won't pay out, however, if the account loses more than 5 percent of its value the previous year. The account was funded with $300,000.
   
   
3. Equity harvest account. No money is taken from this account for the income account if there is a loss or no growth in the harvest account. In years when there is growth, 60 percent of its earnings are harvested, or a lesser percentage depending on how much is needed for the income account. This account was funded with $344,000.
   
   
4. Derivative protection account. If the equity harvest account ever declines substantially (more than 30 percent), this account, funded in the example with $100,000 in CDs or principal-protected structured notes, would be transferred into the equity account.
   

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