This ebook teaches you how you can use the strategies of fixed income investing to help ensure you have enough income during your retirement by reducing investment risk so you can focus on more important things during your retirement. I show you how to use fixed income to: 1. Minimize losses to your retirement savings 2. Generate a steady, predictable income 3. Reduce your tax liability 4. Reduce future interest rate risk It is the culmination of 22 years of professional financial experience helping clients just like you make certain they generate enough income in their retirement to enable them to live the life they’ve worked so hard to achieve.

2. 1
How do you make sure – 100% sure – that you can live off
of your savings for the rest of your retirement?
This e-book is the culmination of 22 years of professional financial
experience helping clients just like you make certain they generate
enough income in their retirement to enable them to live the life they’ve
worked so hard to achieve.
I am now teaching you how you can use the strategies of fixed income
investing to help ensure you have enough income during your
retirement by reducing investment risk so you can focus on more
important things during your retirement.
You will learn how fixed income investing can give you complete
peace of mind by providing steady, predictable income – even through
the toughest of recessions and the worst economic crashes.
This eBook gives you everything you need to gain peace of mind in your
retirement by learning how to use fixed income investing to:
1. Minimize losses to your retirement savings
2. Generate a steady, predictable income
3. Reduce your tax liability
4. Reduce future interest rate risk
You’ve worked hard your entire life for this moment….
You’ve successfully built your retirement savings….
You’re ready to live the retirement you’ve dreamed,
But there’s just one thing standing in your way…

3. 2
Mission #1
Minimize losses to your retirement savings
How much risk is enough at retirement? I can tell you that less is definitely
more.
I saw people who had worked hard their entire lives only to lose a huge
amount of their wealth during the last recession. Just a massive amount – forty
percent. Nearly half of everything they’d managed to save over the last thirty
years.
It was heart breaking. All their hopes, dreams and plans just stripped away,
and left totally powerless to do anything about it.
In fact, they’re still suffering. Their investment accounts have just recently
recovered to where they were before the recession. They’ve actually lost
years’ worth of growth opportunity because they were over-exposed to the
risks of the stock market.
It’s why I do what I do. I’ve seen too many people hurt by the markets just
when they’re about to start enjoying everything they’ve worked towards.
In good times, the stock market can be great. But it can be disastrous, too. You
need to avoid losing your hard-earned money right when you need it most.
It’s not about how much you have; it’s about how much you can
afford to lose.

4. 3
Should you choose safety or growth?
When it comes to your retirement, safety wins every time. The reason is
simple: when you retire, you don’t have another chance to make up for any
losses in the markets. Putting your savings on the line simply isn’t worth the
risk. It’s all about protecting what you have.
Let me give you a very real example. Let’s say you’ve saved $500,000 for
retirement. If you’re chasing growth by investing in the stock market and lose
fifty percent of that, you don’t have another ten years of working history to
rebuild the balance. And there’s almost no chance that you’d be able to get
back to your original $500,000 by investing again. In fact, you would have to
generate a 200% return to get back to $500,000 if you lost half of your wealth.
The money’s just gone, and you’re left to pick up the pieces. The pain is very
real.
Fixed income investments can give you the stable retirement you’re seeking
The great thing about fixed income investing is that you know exactly what the
road up ahead looks like. You invest for a fixed period at a fixed interest rate,
and you’ve got powerful guarantees that reduce your risk.
So, what is fixed income investing? Fixed income investments are made up of
different types of bonds and Certificates of Deposit (CDs).
Bonds are bought from the federal government, municipalities, blue chip
corporations, federal agencies or banks. These types of bonds are some of the
safest investments available anywhere.
A lot of these bonds – like treasury bonds – are backed by the federal
government. Others, like CDs for example, are insured to their full value. So
even in the very worst case scenario, if there’s another major financial crash,
you’re completely protected.

5. 4
Putting retirement investments back into the bigger picture
This might sound strange from a financial advisor, but I think the less time you
spend being concerned about money the better.
Retirement is about making the most of life: spending time with family, taking
up those hobbies you always had in the back of your mind, exploring new
places or basking in the sun.
And this means having complete peace of mind. If you know for sure that
you’ve got a steady income and all your wealth is protected, you can get on
with what really counts – living a good life.
Wealth preservation is the key to a safe, stable and pleasant retirement. We
know from experience that the potential downsides simply outweigh any gains
you might expect. Losses could lead directly to a very negative impact on your
day-to-day life.
Reduce your risks
The last thing you need when you retire is to worry about what might or could
happen right around the corner. So we think you should be aiming for low-risk
investments. Wealth protection is the name of the game.
Holding a portfolio of individual bonds through to maturity is unaffected by
stock market movements and interest rate changes. While everyone else is
running around worried about stock market volatility, you can relax and avoid
the mayhem that often comes with investing in the stock market.
There are market prices for individual bonds and these do change over time.
However, if the investor holds the bond to maturity, he/she will be unaffected
by the bond’s price changes.
Historical evidence also clearly shows that investment-grade bonds with triple
“A” (AAA) ratings are amazingly safe investments.

6. 5
If held to maturity, there is almost no chance of AAA rated municipal bonds
defaulting. There is also less than a one percent chance of default on high-
grade corporate bonds.
Certificates of deposit are completely risk free because they are insured.
Treasury bonds and those issued by federal agencies are backed by the federal
government. Both of these types of bonds offer lower yields than municipal
and corporate bonds, however.
In practice, you are able to reduce your risk by diversifying your fixed income
investments across different types of bonds, corporate sectors, and geographic
location.
Mission #2
Generate stable, predictable income
The first thing you need to do to calculate your ability to afford your
retirement is to look at your cash flow and figure out how much money you
need each month or year to afford the lifestyle you want.
Safe, predictable fixed income investments fill the gaps of your income needs
that aren’t covered by Social Security, pensions and other sources. Because
bonds can have fixed terms with fixed-rate rates of return, you know for sure
that you will get that money regardless of what happens in the stock market.
You create your own annual income
Fixed income investments allow you to build portfolios that provide a very
specific amount of income -- income that’s essential in meeting your
retirement lifestyle needs.
The fixed terms of bonds and similar investments allow you to “ladder”. With
laddering, you stagger the bond investments so that they mature every year.

7. 6
For example, if you needed a yearly income of $20,000, you would plan out
your investments so that you had $20,000 worth of bonds maturing every year.
This eliminates the need to watch your investments, worrying as prices go up
and down. You can simply get on with what’s important – making the most of
your retirement.
An example of how to create the retirement income you need
Here’s an example of how you would build a bond portfolio to meet your
annual income needs:
Let’s assume the following:
 You need $20,000 per year in extra income starting in 2015
 You currently have $600,000 in investable assets
 Inflation is 3%
 You have a time horizon of 8 years
 Internal rate of return = 3.6%
The cost of CDs and bonds in this portfolio is $160,000. The remaining
$440,000 will be used to purchase equities using no-load index funds and
exchange traded funds (ETFs) for growth and as a hedge against inflation.
Year of
Maturity
Cash flow needed
adjusted for inflation
Coupon
Interest
Principal Portfolio cash flows
2015 $20,000 $5,544 $15,000 $20,544
2016 $20,600 $5,004 $16,000 $21,004
2017 $21,218 $4,428 $17,200 $21,628
2018 $21,855 $3,809 $18,500 $22,309
2019 $22,510 $3,143 $19,700 $22,843
2020 $23,185 $2,434 $21,000 $23,434
2021 $23,881 $1,678 $22,500 $24,178
2022 $24,597 $868 $24,100 $24,968
$177,846 $26,908 $154,000 $180,908

8. 7
As you can see in the above table, we’ve created a portfolio that starts yielding
$20,000 in income in 2013 and increases at least 3% per year to keep up with
inflation.
Mission #3
Reduce your tax liability
Taxes can eat up a significant portion of your income in retirement. Your 401k,
Social Security, and other income are all subject to federal and state
taxes…EXCEPT FOR income earned from municipal bonds. Municipal bonds
have the benefit of being tax-exempt in the state where you reside. This
means even more money in your pocket, when you need it the most.
Taxable bonds are used strategically in fixed income portfolios because they
provide higher rates of return, but you usually put them into tax-wrapped
individual retirement accounts (IRAs) and 401(k)s to minimize your tax
exposure on gains made on these investments.
What you’re essentially doing with sophisticated fixed income investing is
reducing taxes by reducing your taxable income. Given that up to 85% of your
Social Security benefits may be subject to federal taxes, it’s important you
make sure that you’re not paying more than you need to.
Finally, there’s a new 3.8% Medicare tax that’s due to start in 2013. If you’re in
a high income level of $200,000 or more this will have an impact on you.
Investing in tax-free bonds, however, frees your income from this additional
Medicare tax because the bonds are not subject to the proposed Medicare tax.

9. 8
Mission #4
Protect yourself from future interest rate risks
Nobody can predict the future, but you can protect yourself from the future if
you know how.
Building bond ladders allows you to “immunize” your bond portfolio from the
very real risk of rising inflation rates.
How does a bond ladder work? You take a portion of your bond portfolio
maturing at the end of every year. If interest rates go up, you take the money
you receive at year’s end and reinvest it at the newer higher interest rate.
So while the cost of living may get more expensive with inflation, you can
protect income by essentially cancelling out the effect of higher cost of living
due to inflation, because you’re now earning a higher return on your fixed
income investments.
Lower your investment costs
If you buy individual bonds, you pay a commission (called a “spread”) which is
only paid once, if the bond is held to maturity. Typically, these are very
reasonable expenses, varying between 0.2 and 2 percent.
A bond “fund” is a pooled portfolio of bonds but without the predictable
characteristics offered by individual bonds. With a bond mutual fund, you’re
paying a fund manager as much as 2 percent every year, and there may
additional commissions and costs when sold.
Since this can significantly eat away at your returns, and because fund
managers usually don’t hold bonds until full maturity, we tend to avoid bond
mutual funds entirely.

10. 9
But don’t bonds have lower returns than the stock market?
On average, yes, but remember the name of the game is wealth preservation,
not wealth accumulation. It is far better to be 95% certain of a 5% gain than
50% certain of a 10% gain.
Historically speaking, stocks have outperformed bonds over the long run, on
average, BUT, let’s take a look at the past decade. As you see in the below
chart, the Total Bond Market Index actually outperformed the Total Stock
Market.
Name Ticker Inception
Date
Worst 1 Year
Return
10 Year Avg. Return
(as of 3/31/12).
Vanguard Total Bond
Market Index
VBMFX 1986 -00.76 in 1999 5.51%
Vanguard Total Stock
Market Index
VTSMX 1992 -37.04 in 2008 4.92%
Not only would you have significantly reduced your investment risk, but you
would also have come out ahead.
This isn’t guaranteed to happen every time, but this example shows that when
it comes to investing for your retirement, investing in stocks doesn’t
necessarily produce higher returns.
The final takeaway
If you take one just one thing away from this e-book, your investing goal for
retirement should be about preserving your wealth and building a steady
annual income that meets your lifestyle needs while reducing your risks.

11. 10
I hope this overview of how you can use and benefit from fixed income
investing for your retirement was of value to you.
While the exact mechanics of building the right fixed income portfolio are
more detailed and complex than what can be succinctly explained in this book,
the scenarios and outcomes outlined here are very real.
I encourage you to think more about how fixed income investing can help you
achieve your retirement goals.
I am happy to answer any of your questions and can be reached at
Russ@pdxfis.com
Happy Retiring….
Russell D. Francis, CPA, CFP®
Russ@pdxfis.com
www.pdxfis.com
Portland Fixed Income Specialists, LLC is registered as an Investment Advisor with the State of Oregon
Department of Consumer and Business Services. All information contained in this ebook concerning
investments is for informational purposes only and does not constitute a solicitation or offer to sell securities
or investment advisory services. Such an offer can be made only in states where Portland Fixed Income
Specialists, LLC is registered or an exemption from such registration is available, and no new account will be
accepted unless and until all local regulations have been satisfied.