Before you take the leap into retirement, you want to feel completely confident that your money will last. It’s natural to want to be sure you have enough saved, but rather than focusing on savings, you should be looking at how you’re going to create income instead.
The goal: Create more income with less volatility. It’s something I’ve been studying, and I have some exciting results to share.
In Part I and Part II in this series, I suggested that you could receive more retirement income with less volatility if you and your adviser move from a strategy of asset allocation to one of income allocation. Asset allocation is the traditional strategy in which you strive to have diversified investments to maximize and protect your assets. Income allocation, on the other hand, is a strategy in which you put together a plan with different sources of income that will be reliable and lasting in retirement.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
We conducted a study comparing the results between asset allocation and income allocation strategies under various assumptions as to the retiree’s risk profile and market outlook. Not only did we observe more retirement income and less volatility with income allocation, but we also saw generally higher economic returns. A copy of the study is available for free when you register on the Go2Income website.
Having a higher economic return in addition to the features and “soft benefits” described below, makes a strong case for the income allocation strategy.
Sample Case
For this article, we selected the following case from our study: Male, 70, who has $1 million in retirement savings, with 50% in a rollover IRA. His risk profile is conservative, with an asset allocation of 30% to equities, based on the “100 minus age” rule of thumb, and 70% to fixed income securities.
We compared the asset allocation strategy to an income allocation strategy with a high allocation to income annuities. Both strategies assume identical market returns.
Here are some highlights of the results of income allocation in this case:
- After-tax income is increased by 50% over the investor’s lifetime.
- Income volatility is reduced from 69% to 19%.
The investor can spend the extra income or reinvest it to leave a legacy as much as 29% higher.
Sound too good to be true? Let me walk you through the numbers and the explanation for these advantages.
Review of Income Allocation Strategy
The twin goals of income allocation are to increase the amount of after-tax (spendable) income and to reduce income volatility (for more dependability). These three steps distinguish the income allocation strategy from virtually all other retirement planning strategies.
-
Stocks Keep Climbing as Fed Meeting Nears: Stock Market TodayA stale inflation report and improving consumer sentiment did little to shift expectations for a rate cut next week.
-
Your End of Year Insurance Coverage Review ChecklistStop paying for insurance you don't need and close coverage gaps you didn't know about with this year-end insurance review.
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
Time Is Running Out to Make the Best Moves to Save on Your 2025 TaxesDon't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
-
'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
-
For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
-
I'm a Financial Adviser: This Tax Trap Costs High Earners Thousands Each YearMutual funds in taxable accounts can quietly erode your returns. More efficient tools, such as ETFs and direct indexing, can help improve after-tax returns.
-
A Financial Adviser's Guide to Divorce Finalization: Tying Up the Loose EndsAfter signing the divorce agreement, you'll need to tackle the administrative work that will allow you to start over.
