retirement planning

Even the Experts Can’t Figure Out How to Plan for Retirement Income

Why? The old asset allocation model of retirement planning focuses on the wrong part of the equation. Instead, Income Allocation offers a better road map to reliable income throughout retirement.

An article in The New York Times this August, “How to Enjoy Retirement Without Going Broke,” is a reminder that experts — from Nobel Prize winners to financial advisers — are challenged by planning for retirement income. It also showed that those who provide investment advice are stymied by this almost universal problem for a large part of the retiree market.

On the academic side:

 “It’s really nasty. It’s the nastiest, hardest problem I’ve ever looked at,” William Sharpe told the Times. Sharpe, who won the Nobel Prize in economics, reported his progress on the problem of how retirees can manage their financial assets without running out of money: “I can’t say I’ve found some magic solution, because I haven’t.”

On the adviser side:

One advisory firm mentioned in the article appeared more confident than the academics, with brochures touting “7 innovative ways to generate income from your nest egg.” On the other hand, they also “hate annuities” and their firm’s reward system — “we make money when you do” — is based on having clients take market risk, rather than providing secure income.

The Challenges Under Consideration

From academic to practicing adviser, why do people find it so challenging to figure out a smarter way to create a plan for retirement income? Here are a few reasons why the experts don’t get it:

  1. Instead of planning using an Income Allocation method, most of the traditional research or practice for savers has been about asset allocation and the techniques to improve or manage the returns on investing.
  2. Our nation’s financial regulatory structure permits an adviser to be a fiduciary even though the adviser is not required at least to consider other financial products, such as income annuities, that can deliver tax-efficient lifetime income.
  3. For high-end advisers, a large part of their practice is designed for high net-worth individuals who have sufficient retirement savings to live off the interest and dividends, avoiding the risk of running through their funds.
  4. The algorithm that integrates annuity payments into an income allocation plan requires an understanding of income annuities, particularly the differences with annuities designed for accumulation.
  5. These experts often confuse the market value of an investment with its liquidity. Income annuities, just like a pension or Social Security, may not have liquidity, but they do have a market value.

The chart below shows for a typical Income Allocation plan the combination of the market value/liquidity of investment portfolios and the market value of future guaranteed annuity payments. The latter has significant value, creating stability in income as well as peace of mind.

Income Allocation Plan for a Woman, Age 70; $2 Million Savings; 50% Rollover IRAProjection of Fair Market Value of Plan

A line graph charts the income sources in a woman's $2 million portfolio.

Courtesy of Jerry Golden

Note that the market value of this plan starts at the initial retirement savings of $2 million and reaches $2.25 million at age 95. Under this plan, the retiree wanted the value of the investment portfolios to equal $2 million at age 95. The retiree accomplishes this by reinvesting a portion of her rollover IRA distributions into a designated legacy account. (In our model, it’s invested in a balanced portfolio of stock and bond ETFs with a high allocation to stocks.) The amount reinvested in this plan is approximately $4,000 per year.

Importantly, the income starts at $102,000 per year and grows to $140,000 at age 85 and $160,000 at age 95. Here’s a breakdown of the sources of income under this plan — which is the basis of the Income Allocation method. Note that this income will be reduced by taxes and the reinvested income into the designated legacy account.

Sources of Income for the Same Woman, Age 70

A bar chart shows the sources of income for a woman with a $2 million portfolio.

Courtesy of Jerry Golden

Note: DIA/QLAC are two types of deferred income annuities. SPIA is a single premium immediate annuity with payments starting in one year. Also, interest income is so small that it can’t be represented in the graphic.

So, you can see how Income Allocation works by substantially boosting income over a lifetime, while at the same time understanding the market value of a plan.

Outperform the Experts to Plan for Retirement Income

Other experts were quoted about annuity payments in The New York Times article referred to above, saying “The purchaser has to write a big check to get a series of small checks, which may simply look like a bad deal to a naïve consumer.” Relatively sophisticated consumers, however, like those who visit Go2Income, understand how annuities work: Retirees receive monthly checks of, say, $3,000 for Social Security and $2,000 for a pension. Intuitively, they know that the government or the corporation has assumed a payment liability of hundreds of thousands of dollars. With annuity payments purchased from insurance companies, the consumer is making an investment purchase to produce lifelong income.

What About Low-Cost Robo-Advisers?

These advisers are new on the scene and don’t have a history with high net-worth investors, so they could approach advising on a plan for retirement income with a fresh pair of eyes. So far, however, they seem to take the de-accumulation approach, albeit with lower fees. We expect that once they become knowledgeable around income annuities, they’ll see that Income Allocation can work withing their advisory model of low fees and better results.

Retirees who educate themselves know they can do better.

As I explained in an earlier blog outlining how my Income Allocation planning method works, everyday consumers can follow a few simple steps to create true income that lasts a lifetime and is low-risk. Creating an Income Allocation Plan allows you to look at many planning alternatives, and to decide — based on your own expertise — which ones are the best for you.

Income Allocation Planning at enables you to design and evaluate your own plan for retirement. For guidance and answers to other retirement questions, contact me at Ask Jerry.

About the Author

Jerry Golden, Investment Adviser Representative

President, Golden Retirement Advisors Inc.

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, where consumers can explore all types of income annuity options, anonymously and at no cost.

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