This Four-Part Retirement Strategy Can Help Withstand Bad Timing

If you’re worried about the markets being down when it’s time for retirement, consider dividing your assets among different baskets to boost your confidence.

A retired man looks at his laptop with his smiling wife looks over his shoulder.
(Image credit: Getty Images)

Diversification used to be simple enough. A typical portfolio included stocks, bonds, and cash.

But that kind of traditional diversification has proven less effective in recent years as market volatility has increased. Discovering if your portfolio is designed to prosper during good market environments and withstand poor ones is essential.

We spend our lives saving and accumulating for retirement. Many people do a good job of diversifying and likely have seen their investments grow. But as we approach retirement, our priorities begin to shift. Sure, we still want to grow our money — and stay ahead of inflation. But now protecting what we’ve accumulated — and generating income from it — become the top priorities.

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Mitigating risk, maximizing time

A major risk retirees face is having a big market pullback at the same time they are withdrawing their “retirement paycheck.” When that happens, not only does the account value decrease because of poor performance, but it’s further reduced because of the withdrawal. With that withdrawn money gone forever, when the remaining account balance potentially rebounds, the gains will be muted.

Unfortunately, the Swiss Army knife of an investment designed to grow money, protect it from downturns and generate consistent income — all at the same time — doesn’t exist. Instead, to help navigate this delicate landscape, dividing assets among several baskets — and assigning each one a specific time frame and corresponding risk profile is prudent.

Compartmentalization is key. Layered on top of your fixed income streams — like Social Security, pensions and annuities — you can fill baskets designed for income today, conservative investments for the nearer term and more balanced or growth approaches for the longer term. Today’s basket spins off income needed now — allowing the future baskets the time to potentially grow so they are ready when needed.

Here’s a framework of a four-segment strategy to help mitigate poor market timing risk:

  • Lifetime income. Sources such as Social Security, pensions and annuities form an “income floor.”
  • Fixed income. Positioned atop your “income floor,” this segment is meticulously crafted to gradually deplete over a span of three to five years. Its investments typically lean towards the secure side, often including guaranteed options.
  • Balanced. Functioning as a bridge connecting the income and growth components, the balanced segment is typically afforded a time horizon of five to 10 years. Operating as a dual-force engine, profits generated from this category may supplement the income needs originating from the fixed-income segment.
  • Long-term growth. Engineered for a growth trajectory spanning more than 10 years, money allocated to this basket aims to benefit from remaining invested through multiple market cycles. This category can also encompass unconventional investment types.

Lacking a well-defined strategy for generating monthly retirement income (unnecessarily) introduces a large element of uncertainty and anxiety. However, implementing a time-segmented retirement income plan installs an overarching strategy to guide the selection of suitable investments aligning with a multiyear, inflation-adjusted income need. By embracing a strategy-oriented approach, individuals can navigate their retirement journey with enhanced confidence.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger was not compensated in any way.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Bleakley Financial Group, a registered investment advisor. Amwell Ridge Wealth Management conducts advisory business under a “doing business as” (d/b/a) name; however, Bleakley Financial does not hold itself as conducting advisory business through Amwell Ridge Wealth Management. Bleakley Financial Group and Amwell Ridge Wealth Management are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Investing includes risks, including fluctuating prices and loss of principal.

No strategy assures success or protects against loss. Past performance is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Asset allocation does not ensure a profit or protect against a loss.

Guarantees are based on the claims paying ability of the issuing company. LPL Financial, Amwell Ridge Wealth Management, Bleakley Financial Group, and Kiplinger are not affiliated.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

David W. Johnston, CFP®
managing partner, Amwell Ridge Wealth Management

David Johnston is the managing partner of Amwell Ridge Wealth Management and a CERTIFIED FINANCIAL PLANNER™ professional. He built the firm around the fundamental belief that a proper financial plan begins with risk management, then infuses innovative, enhanced diversification within an investment portfolio. Johnston earned a Bachelor of Science in finance from the College of New Jersey.