08/15/2012

MANAGING Your Retirement Income

Income Management

Consumer respondents to a 2007 survey from Alliance Bernstein and the Insured Retirement Institute (IRI) "said they were willing to pay between 4% and 6% of assets to guarantee that they wouldn't run out of money in retirement."

Assuming a 30-year horizon, adding a guaranteed income component to conservative, moderately conservative, and moderate portfolios is beneficial, increasing the average sustainable income and decreasing shortfall income risk according to an Ibbotson January, 2010 research report.

In study after study, it's clear that a guaranteed income solution is an important, if not essential, cornerstone of retirees' portfolios. Increasing life expectancies reinforce this fact. According to a Social Security Administration August, 2005 actuarial study, a husband and wife both aged 65 have approximately a 47 percent chance that at least one of them will live to his or her 90th birthday and a 20 percent chance of living to his or her 95th birthday.

Eight Retirement Roadblocks

Outliving one's retirement assets can happen in any number of ways, including, but not limited to, experiencing one or more of the following eight retirement roadblocks:

  • Insufficient investment assets to sustain a longer-than-average life expectancy
  • Prolonged higher-than-average inflation
  • Sequence of returns with bad early years. See Retirement Income VisionsTM October 5, 2009 post, The Sequence of Returns - The Roulette Wheel of Retirement.
  • Withdrawal drag. See Retirement Income VisionsTM September 28, 2009 post, Withdrawal Drag - The Silent Killer.
  • Excessive investment withdrawals relative to available retirement assets.
  • Uninsured events, e.g., long-term care
  • Unfavorable income tax law changes
  • Poor investment management

As you can see, too many things can happen, several of which are beyond our control, that can prematurely depelete our investment assets. Although unplanned, the occurrence of one or more of these events could easily derail what's suppose to be our golden years.

A Retirement Paycheck is Essential

Guaranteed Inflows
Something we have the ability to control, and furthermore, is imperative for us to do, is creation of our own pension plan. Specifically, we need to replace employment income with a retirement paycheck.

The risk that we will outlive our retirement assets is shared by individuals of all means. A sizeable nest egg, while it can sustain one through many years of retirement, can also be depleted before the end of one's lifetime in the absence of a sound retirement income plan.

Although a retirement paycheck doesn't guarantee that we won't outlive our retirement assets, it will mitigate our exposure to several of the eight retirement roadbloack, and, will, in turn, improve our odds for success.

Income Management Strategies

We understand the importance and place of income management in our clients' portfolios. Recognizing that one size doesn't fit all, we have developed expertise in a variety of income management strategies.

These include three main types of strategies as follows:

Our approach to each of these three types of strategies is discussed on the next five pages. 

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