Retirement Income Planning

Thanks to advances in medicine, people today are living longer, much longer in fact than their parents and grandparents. Companies offering pensions have seen a steep decline in recent years and yields on retirement savings vehicles have suffered in the low interest rate environment we continue to experience.

The “4% Rule” developed by William Bengen in 1994, used historical data to state that a retiree could withdraw 4% annually from a retirement portfolio without depleting the portfolio. The inherent flaw with Mr. Bengen's theory was that he failed to account for Sequence Risk; the risk of receiving lower or negative returns early in a period when withdrawals are made from underlying investments. With traditional Asset Allocation and the 4% Rule being less effective in recent years, is there a solution?

We have come to favor a concept known as Income Allocation. This solution takes into account monthly needs, Social Security Income and how to fill the gap created from those needs minus Social Security benefits received. In many cases, repositioning a portion of other retirement assets into a vehicle which can deliver guaranteed monthly income is a solution.