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.