Smart Retirement Strategies: Managing Risk & Income

Let’s look at a quick example:

Say you invest $200,000 and the market drops 15% in the first year. Your account falls to $170,000. The next year, the market rebounds and you gain 15%, bringing your account up to $195,500 — not back to your original $200,000. Even though the average return over those two years is 0%, you’ve still lost $4,500.

Now consider a more dramatic scenario: You lose 40% in year one — your $200,000 drops to $120,000. In year two, you gain 40%, which brings the account up to $168,000. That’s still a $32,000 shortfall, despite the average return looking like a break-even.

The key message: It’s not about average return — it’s about compound return, the actual number you see on your statement. Volatility — the up-and-down swings in the market — can quietly erode your real wealth over time, even when average returns appear neutral.

There are two key stages when investing: the growth phase (when you're building wealth) and the income phase (when you're withdrawing money). Managing market risk depends on which stage you're in — and whether your assets are in qualified (like an IRA) or non-qualified accounts (like brokerage).

1. Growth Phase (No Income Needed Yet):

• Focus on long-term growth and compounding.
• Use diversified asset allocation to reduce volatility risk.
• Apply tax strategies like tax-loss harvesting for efficiency.

2. Income Phase (You Need Withdrawals):

• A different approach is required, because now your portfolio must fund your lifestyle.
• We start by asking:
• How much income do you need?
• What guaranteed income sources do you have (Social Security, pension)?
• How much of your portfolio needs to support withdrawals?
• A bucket strategy can help — dividing your assets into short-, mid-, and long-term segments to manage risk and income.

1. Market-Based Strategy

• Assets stay invested with professional management.
• Income is generated through a careful, risk-managed withdrawal plan.
• This approach offers flexibility, but returns are not guaranteed.

2. Guarantee-Based Strategy

• Uses tools like annuities to create predictable, pension-like income.
• Provides income for life, regardless of market conditions.
• Helps reduce risk of outliving your assets.

The right plan isn’t one-size-fits-all — it should be shaped around you. Here are key things to consider:

• Your risk temperament — How much volatility are you comfortable with?
• What keeps you up at night — Peace of mind matters just as much as performance.
• Survivorship needs — Will your plan continue to support loved ones if something happens to you?
• Access to resources — Are your funds tied up, flexible, or open to strategy adjustments?
• Cash flow & liquidity needs — Are you prepared for both expected income needs and unexpected expenses?
• Spending habits — If you prefer to always keep all assets accessible, it’s crucial to plan for discipline. Some individuals find it challenging to manage withdrawals without clear structure. This lack of discipline is one reason why some retirees may benefit from a more structured, guaranteed-income strategy — such as annuities.
• What kind of investor are you? — Do you value flexibility, guarantees, growth, or simplicity? Your preferences guide everything.

If you’re someone who values access but recognizes the need for structure and discipline, it may be in your best interest to consider placing a portion of your assets into a guaranteed-income bucket using annuities. This can create steady income and remove the stress of guessing how long your money will last.

Disclosures

We don’t prefer one strategy or “bucket” over another — the right solution always depends on you. Your financial plan must follow your needs, not the other way around.

• Wealth Management Portfolios
  These are managed by institutional money managers. When reviewing options with your advisor, consider:
• Your portfolio’s risk level and if it's suitable for your goals
• All applicable advisory and management fees
• Annuities
  These are available in fixed, indexed, and variable types — each with different uses. When evaluating annuities, make sure to:
• Review all features and benefits
• Understand fees, surrender charges, and restrictions
• Compare these against your retirement income needs

A well-informed plan — whether market-based, guarantee-based, or a blend of both — should always align with your unique situation, goals, and peace of mind.

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