YOU Are the Biggest Threat to Your Retirement Plan
When the going gets tough in the market, people invested in stocks have the natural impulse to pull out to cut their losses. By using an income allocation plan instead, you can ride out downturns more confidently.


People planning to retire often tell me their greatest fear is running out of money after they stop working. They have a valid concern, but the risk is not really about living too long.
Instead, the issue that could bring calamity is the risk of failing to consistently follow a reasonable retirement plan.
Keep on Track
After people create their retirement plans, the tough part for many is staying the course. That's true particularly when investment returns are volatile and negative. The natural reaction to that kind of market environment is to cut and run. But studies show that investors lose 1% or more on their returns when they are not in the market. This could mean five or more years in lost income.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
However, unlike the risk of market returns, which no amount of diversification can fully allay, you can control the “stay the course” risk. All it takes is a little adjustment in your retirement planning, based on a simple premise: Reduce the amount of your income that is subject to the market — or what we call "income volatility."
With preparation, you can reduce your income volatility during retirement by 50% or more. And, with the proper investment, you can get a 20% increase in income that lasts a lifetime.
You can achieve these results with an income allocation plan.
How Income Allocation Works
As I have written previously, income allocation's twin goals are to increase the amount of after-tax (spendable) income and to reduce income volatility (for more dependability).
Here’s an example for two new retirees age 70, and how income allocation compares with a traditional asset allocation plan in which all income comes from withdrawals from savings:
Investor A follows an asset allocation withdrawal strategy and invests 50% in the stock market and 50% in bonds. Her withdrawals are set to last for 25 years, assuming a blended long-term market return of 4.5%.
Investor B follows an income allocation strategy, using both withdrawals from savings and guaranteed lifetime income from income annuities. Some of her savings are used to purchase an immediate annuity with income starting at 70. She also uses a portion to buy deferred income starting at age 85. The balance is invested in a managed portfolio of stocks, bonds and cash, with withdrawals set to last for 15 years.
Unfortunately, soon after the start of the plan, a market meltdown occurs, just like in 2008-09. Investor A, with all her savings in an investment account with no guaranteed income, loses $180,000 in account value. Investor B loses $90,000, but still receives guaranteed income from her immediate annuity. She also has the peace of mind of knowing that income after age 85 is guaranteed for life. Further, Investor B has a managed withdrawal program that takes some of current year’s withdrawals from the cash account. (I am preparing a study on managed withdrawal strategies and will post it soon.)
Who is more likely to stay the course?
Investor B is not happy with the market machinations, but her income allocation plan reduced her income risk, so she sticks with her plan. Investor A is more likely to change course. She might sell during the downturn in hopes of stanching the losses, or she might reduce withdrawals — and her lifestyle — going forward.
Even the most expert adviser can’t protect against volatile markets. But when you consider all possible outcomes and create an income allocation plan as you prepare for retirement, you will be able to weather troubled times in the markets with confidence.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.
-
Don't Let a "Clunker" Fund Drag Down Your 401(k)
401(k) lineups are loaded with overpriced, underperforming fund options. Here's how you can dump the clunkers.
-
Do You Need Flood Insurance? I'm an Insurance Expert, and Here's Where You Can Get It
Standard homeowners insurance does not cover flood damage, so you might need separate flood insurance, which you can get either through FEMA or private companies. Here are the details.
-
Do You Need Flood Insurance? I'm an Insurance Expert, and Here's Where You Can Get It
Standard homeowners insurance does not cover flood damage, so you might need separate flood insurance, which you can get either through FEMA or private companies. Here are the details.
-
I'm an Investment Professional: These Are the Three Money Tips I'm Giving My College Grad
College grads can help set themselves up for financial independence by focusing on emergency savings, opting into a 401(k) at work (if it's offered) and disciplined, long-term investing.
-
New SALT Cap Deduction: Unlock Massive Tax Savings with Non-Grantor Trusts
The One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
-
Know Your ABDs? A Beginner's Guide to Medicare Basics
Medicare is an alphabet soup — and the rules can be just as confusing as the terminology. Conquer the system with this beginner's guide to Parts A, B and D.
-
I'm an Investment Adviser: Why Playing Defense Can Win the Investing Game
Chasing large returns through gold and other alternative investments might be thrilling, but playing defensive 'small ball' with your investments can be a winning formula.
-
Five Big Beautiful Bill Changes and How Wealthy Retirees Can Benefit
Here's how wealthy retirees can plan for the changes in the new tax legislation, including what it means for tax rates, the SALT cap, charitable giving, estate taxes and other deductions and credits.
-
Portfolio Manager Busts Five Myths About International Investing
These common misconceptions lead many investors to overlook international markets, but embracing global diversification can enhance portfolio resilience and unlock long-term growth.
-
I'm a Financial Planner: Here Are Five Smart Moves for DIY Investors
You'll go further as a DIY investor with a solid game plan. Here are five tips to help you put together a strategy you can rely on over the years to come.