Income Matching

Bonds will pay you the coupon amounts on specific dates (usually every six months) and pay their full face value upon maturity. Holding them to maturity makes them immune to interest rate risk and avoids the Net Asset Value (NAV) risk inherent in bond mutual funds.

The Income Matching Portfolio can be designed to provide immediate income, where cash flow begins now. It can also be designed to defer income in cases where cash flow will be needed later, such as for college funding or retirement.

Building an Income-Matching Portfolio

Income matching portfolios are engineered to match a specific cash flow stream. For example:

$1,000,000 investible assets
$100,000 per year income starting in 3 years
3% inflation adjustment
8 year time horizon 2.6% IRR

Year of Maturity

Interest

Principal

Portfolio cash flows

Target cash flows adjusted for inflation

2015

$23,591

$77,000

$100,591

$100,000

2016

$17,414

$88,000

$103,414

$103,000

2017

$14,123

$94,000

$106,123

$106,090

2018

$9,472

$100,000

$109,472

$109,273

2019

$5,100

$107,000

$112,100

$112,551

2020

$5,100

$111,000

$116,100

$115,927

2021

$5,100

$114,000

$119,100

$119,405

2022

$5,100

$117,000

$122,100

$122,987

$85,000

$808,000

$889,000

$889,233

The cost of CDs and bonds in this portfolio is $760,000. The remaining $240,000 will be used to purchase equities using no-load index funds and ETFs for growth and as a hedge against inflation.