Portfolio Strategies

A retirement income strategy can help you decide how to divvy up your savings and convert it into a steady income that will need to last the rest of your life. There are numerous philosophies in the marketplace for building a retirement portfolio for income. Three are listed here as thought-starters.

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Strategies:

Goals:

Total Return

  • Seeks risk-adjusted, total return that you can convert into annual income.
  • Resembles a pre-retirement portfolio.

Buckets/Time Segmentation

  • Each bucket has its own degree of liquidity and risk; shorter term buckets are less risky.
  • Draw monthly income from short-term buckets.
  • Long-term buckets replenish short-term ones.

Income Floor

  • Your income floor contains very conservative, fixed- income investments like bonds, and/or an annuity.
  • Discretionary savings are managed like a diversified return portfolio.

Benefits:

Total Return

  • Easy to implement and monitor.
  • May help avoid excessive yield focus.
  • Time-tested and well researched.
  • Flexible and puts you in control.

Buckets/Time Segmentation

  • Enables you to match income timing with risk.
  • Can help risk-adverse clients maintain stock exposure during down markets.
  • Easy to measure results and make adjustments.

Income Floor

  • Potentially improves income stability.
  • Helps reduce longevity and market risks.
  • Allows for more aggressive investments for discretionary savings.

Cautions:

Total Return

  • Unless broadly diversified, your portfolio could be more susceptible to market swings.
  • Success may depend on factors you can't control - like a market swing right before, or early in, your retirement

Buckets/Time Segmentation

  • Can be complex to manage multiple accounts.
  • Moving money across buckets may incur taxes

Income Floor

  • Managing the income floor can be complex.
  • High fixed-income allocations or insurance products can limit growth.
  • Current low interest rates make annuities expensive.

Best for Retiree Who:

Total Return

  • Are well funded.
  • Can tolerate more risk.
  • Want to control their assets.

Buckets/Time Segmentation

  • Are anxious about risk.
  • Have precise short- and long-term goals.
  • Have more constrained retirement funding.

Income Floor

  • Are highly concerned about risk.
  • Have more constrained funding.

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This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.