Planning for retirement can be confusing and a bit scary. How do you manage your money now so you can be well-prepared financially for retirement? And how do you ensure that your retirement income will last throughout your life? How can you de-risk your portfolio to avoid the volatile markets like we’re seeing now (and will definitely see again). With increased life expectancies, it’s critical that you weigh all your options and plan carefully. This paper will discuss traditional retirement strategies, as well as introduce you to a less conventional, but potentially more effective and efficient approach to help you reach your retirement goals.
The Problem
Often, “the way we’ve always done it” is no longer the best way to achieve something. In retirement planning, a traditional portfolio uses only conventional stock and bond investments. In this paper, we refer to this as the Traditional Asset Allocation 6040 Portfolio (TRAA 6040). The problem? Traditional stocks and bonds on their own are not efficient for 100% of a retirement income portfolio. They expose a retiree to lower return potential and higher risk.
The Solution
Historically, stocks and bonds have been the mainstay of a typical retirement portfolio. The Hybrid Income Portfolio (HIP) offers a change in product allocation to reduce portfolio risk and increase the rate of return potential. The HIP strategy uses a combination of Traditional Investments (stocks & bonds), Structured Investment Products (SIPs) and Fixed Indexed Annuities (FIAs).
In addition to adding SIPs and FIAs, other strategies should be incorporated to lead to a more efficient retirement outcome, including:
- Social Security Timing: Using the proper strategy to maximize this guaranteed income source
- Tax Planning: Reducing taxes in retirement to increase the net after-tax income annually
- Prudent Use of Home Equity: Incorporating HECM loans as a tax-free income source or portfolio safety net
- Alpha Portfolio Management: Using active and passive portfolio management in the proper asset classes to add Manager Alpha to potentially increase returns. Manager Alpha is the rate of return an investment manager creates above or below the respective benchmark or index.
Read more in our white paper, A Portfolio for a Changing Economy