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Mixing and matching retirement income sources

Creating enough retirement income to last 20 or 30 years – or more – can be a daunting task, and many Americans don’t know how or where to start. To help address this challenge, the Stanford Center on Longevity and the Society of Actuaries developed the “portfolio approach1 for generating retirement income.

The process is similar to building and maintaining a classic investment portfolio. However, instead of focusing on generating assets for retirement, here the main goal is ensuring a stream of reliable income throughout your retirement years.

In classic investment portfolio theory, asset allocation is used to create a balance of risk and reward through a mix of various types of asset classes, including stocks, bonds, and other investments.

In a retirement income portfolio, diversification is applied to potential sources of retirement income.

These income sources can typically include Social Security, annuities, pensions and savings, 401(k) or IRA withdrawals, investment dividends, even income earned by continuing to work.

Each of these income generators will have different characteristics, i.e., how they perform in up or down markets, or the length of time you can expect the asset to keep paying out. No single retirement income source will meet all your needs and goals; the key is to find a mix that’s appropriate for you and will reliably produce the income you need for your retirement years.

There is no one-size-fits-all approach to diversifying your retirement portfolio or choosing your retirement income generators. But prioritizing your retirement goals will help you determine the best income solutions to fit your desired outcomes. Those goals may include:

  • Using investment vehicles that won’t need constant monitoring and adjustment
  • Generating lifetime income
  • Income growth potential to keep pace with inflation
  • Minimizing the possibility that your income will fall below a certain level (especially if the market declines)
  • Access to savings in case of unforeseen major expenses (e.g., medical or long term care)
  • Leaving a legacy of unused funds

Making sure at least a portion of your retirement income is guaranteed will allow you to be more comfortable if you’re including other less certain retirement income sources.

Some additional ways you could stretch your retirement income further include delaying the start of taking Social Security benefits, investing more in stocks if you have the risk tolerance for it, and keeping to a conservative withdrawal rate for your systematic withdrawals.

Going further, you could plan to use the income generated by your guaranteed lifetime income sources to fund your basic living expense necessities, and use the returns from unguaranteed sources for your discretionary spending needs. You could also use what’s called asset-liability matching, in which shorter-term investments or assets are used to meet more immediate income needs, while growth-oriented investments are allowed to mature to fund future income needs.

A sound retirement income portfolio and systematic withdrawal plan will help you navigate through the adventures and challenges that lie ahead.

If you find it satisfying to manage your money and are well-versed in making thoughtful and disciplined financial decisions, then the opportunity to keep using a familiar portfolio approach may be an attractive option for your retirement planning. Be sure to periodically evaluate how your retirement portfolio is performing, and make adjustments as needed.

For more about how a direct-purchase annuity through ReadySet can provide your retirement portfolio with guaranteed income for life, see our How It Works page.


1Steve Vernon, Wade Pfau, and Joe Tomlinson, “Optimizing Retirement Income Solutions in DC Retirement Plans, Phases 1 and 2,” Stanford Center on Longevity project, July 2015.