The 2 Diverging Approaches to Retirement Income Planning: The Probability-Based Approach (pt. 1)

(don’t forget to checkout the video of this blog too)

Taking income out of a portfolio has a very unique set of challenges in retirement.

While saving for retirement you can absorb the volatility of the market much better…

That’s because you have time to recuperate any losses that occur in a market drop.

But, retirement income planning poses a new set of challenges that are often overlooked.

For one, you don’t know how long you’re going to live…

… you just know that you need your money to last as long as you do!

But, what happens if the market doesn’t do well?

Or, a bigger concern, what if the market does really poorly in the early years of YOUR retirement⁉️

This can have a devastating effect on your retirement portfolio and the security of your retirement income.

And there are 2 diverging philosophies on how best to manage the income planning phase of retirement

The first is:

⭐️ The Probability-based Income Planning ⭐️

This is the type of planning most of you have likely encountered.

It’s a very simplified approach that says “keep money invested in the market and withdrawal approximately 4% per year”.

While there is merit to the math behind this approach it often requires a LOT of discipline…

You have to stay invested throughs ups-and-downs and still pull income in consistent withdrawals.

Following this approach requires annual adjustments based on the performance of the market…

So it can create an element of ongoing management, which can become more of a challenge as you get older.

It also leaves you susceptible to the dreaded “sequence of return risk”.

This just means that you are reliant on the performance of the market year by year…

And any bad years in the market might force you to take less income going forward…

To me.. this isn’t the best approach

My philosophy is a bit different.

It focuses on the Safety-first, Market Independent Income Approach (which I discuss in Part 2 of this blog series).

Stay tuned.

Let’s Chat 💬😎