If those don’t drain your account, you will most likely deplete it entirely just by living too long. 

Adding guaranteed income products to a traditionally diversified portfolio may provide the potential to capture a portion of market gains, while potentially limiting losses when the market experiences a downturn. Using this model, explained below, can also help. 

Time Segment Model 

A more disciplined structure for creating retirement income. This approach is designed to spread your portfolio across multiple accounts, each designed to produce income over a certain period of time. How each account is invested depends on how soon the money is to be used. Typically, the initial segments are for immediate needs and may therefore be allocated conservatively in fixed rate or even guaranteed investment products such as certificates of deposit or immediate annuities that may not be subject to a fluctuation in principal. Segments designated for later use can be invested more aggressively. Since they won’t be touched for a while, they have time to overcome market corrections. Over time the aggressive segments will be shifted to more conservative products as retirement savings are used. 

Using this model to build your investment portfolio may allow for continued steady income instead of just playing the stock market game of chance. If you aren’t sure that your current plan uses this model, maybe it’s time for a second opinion. Schedule yours at www.mysecondopiniontoday.com for a no obligation assessment of your current portfolio.

All investing involves risk, including possible loss of principal.

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Despite the risks you might now know of like, dollar cost ravaging and inflation, some advisors still put everything in a lump sum for systematic withdrawals. They will craft a portfolio that seems beautiful in its asset allocation, but really the income derives from withdrawing a percentage of the portfolio. And that puts the entire portfolio at risk.

Let’s say it’s in a 60-40 mix of stocks and bonds, and the market tumbles. “You don’t have all your eggs in one basket,” you will hear, and that’s the line of “modern portfolio theory,” which isn’t so modern anymore, having been around for 60 years or so. It came from a time when the United States was the dominant investment player in the world. Today’s global economy behaves differently. Simply put, Modern Portfolio Theory tells you that diversification leads to retirement success. But don’t feel too reassured.  Diversification is too often defined as stocks, bonds and cash. In times of extreme volatility, investments get more closely correlated to one another.  Often portfolios don’t include other types of  investments or downside protection strategies that truly help to build a diversified portfolio. Guaranteed income products may be an effective alternative investment.

An investment strategy that requires luck—luck that you will retire into a bull market and not a bear—isn’t much better than a strategy that requires flipping a coin. An appropriate strategy for you depends on your investment objectives, risk tolerance and time horizon.

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Market analysis over the past century has shown that extreme changes in investment markets represent only about 3 percent of the time line*. What has made money for investors in very good markets has happened only 3 percent of the time and what created catastrophic losses also happened only 3 percent of the time. But, when those times hit, emotions run high and mistakes can be made due to those emotions and desired market performance.

That’s why it is important to work with an advisor who will work with you to help avoid this potential mistake and keep your emotions from getting the best of you. People sometimes panic and pursue high-risk interest rates, believing that is their only choice if they are to survive. It’s not the case. If you have a written retirement income plan, you will be able to see that.

*White Paper by Aftcast in 2010 titled “Lifelong Retirement Income: Cost of Excluding Variable Annuities”

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