Preserve Your Income

MANNY'S VIEW: Stay Faithful to Stocks Your Retirement Action Plan Repair. Rebuild. Retire.

A commonly accepted rule of thumb suggests that if you restrict your withdrawals to 4% of your investment portfolio during your first year of retirement and increase your withdrawals in subsequent years to keep pace with inflation, you should have enough money to last a lifetime under most circumstances. But the market meltdown was no ordinary event, and some retirees now have to scale back their withdrawals or risk outliving their savings. Some financial advisers are rethinking how current and soon-to-be retirees should invest their money. Instead of "return on investment," the acronym ROI now stands for "reliability of income."

In fact, I'm intrigued by an "income for life" model that divides a retiree's assets into separate “buckets.” The first bucket holds about 25% of the assets, invested conservatively in a ladder of certificates of deposit or short-term, immediate-payout annuities to generate income for the first five years. Another 50% or so of assets might be invested in bonds and a broad-based stock-market index for intermediate goals. The remaining 25% is invested more aggressively in stocks, commodities and real estate for long-term goals of 15 years and beyond. That allows retirees to benefit from potentially higher returns without having to depend on the market for immediate income needs. At the end of each five-year interval, some assets are used to replenish the income bucket, and the remaining investments are reallocated for the long haul.