Rethinking Retirement Income: Balancing Market-Based Portfolios and Guaranteed Income Solutions
When planning for retirement, two common principles often dominate the conversation:
• The 4% Rule
• The 3% Rule
Both are withdrawal strategies designed to help ensure your portfolio lasts throughout your lifetime. Yet these 'rules' don’t exist in isolation — they’re part of a broader retirement readiness framework that must account for sequence of returns risk, portfolio construction, and personal risk tolerance.
This paper will break down the history and meaning behind these rules, explore the often-overlooked sequence-of-returns and sequence-of-withdrawal risks, and present two complementary approaches to building sustainable retirement income:
• Market-Based Portfolio Construction
• Guaranteed Income Solutions — such as annuities.
The History of the 4% Rule and the 3% Rule
The 4% Rule emerged from research by William Bengen in 1994. His study analyzed historical stock and bond market returns to determine a safe withdrawal rate that would allow a retirement portfolio to last at least 30 years without running out of money. He concluded that, historically, withdrawing 4% of your portfolio in the first year of retirement, adjusted for inflation each year thereafter, gave retirees a high probability of success.
The 3% Rule arose from later studies, including updates by Morningstar and others, which suggested that in lower-return environments (and with longer life expectancies), a more conservative initial withdrawal rate may be prudent.
Sequence of Returns Risk & Sequence of Withdrawal Risk
Sequence of returns risk refers to the order in which investment returns occur. Two retirees could start with the same portfolio value and average return, yet if one experiences negative returns early in retirement, their portfolio could deplete much faster.
Sequence of withdrawal risk is closely related — if you withdraw a fixed dollar amount during periods of poor returns, you lock in losses, leaving less capital to benefit from future recoveries.
Sequence of Returns Risk: Impact on Portfolio Longevity
Market-Based Portfolio Construction
Market-based retirement income portfolios can be built using:
• UMA (Unified Managed Accounts)
• SMA (Separately Managed Accounts)
• ETFs (Exchange-Traded Funds)
• Mutual Funds (Standalone or Managed)
• Fee-Based Wealth Management Accounts
When using the 4% or 3% rule in a market-based portfolio, the reliability of that withdrawal strategy depends on:
• Asset class selection
• Asset allocation decisions
• Ongoing portfolio management
• Market conditions and volatility
It’s the money managers’ and advisors’ role to ensure that the asset mix and strategy aim to produce a sustainable withdrawal rate over time — and to adjust as needed.
Investment Disclosure: All investments carry risk, including loss of principal. Past performance is not indicative of future results. Portfolio construction should be discussed with a qualified financial professional who understands your goals, risk tolerance, and time horizon.
Guaranteed Income Solutions: Annuities
Annuities can provide a guaranteed income stream regardless of market conditions. Types include:
• Variable Annuities
• Registered Index-Linked Annuities (RILAs)
• Fixed Annuities
• Fee-Based Annuities
Some offer guaranteed lifetime income riders, providing income you cannot outlive. This transfers the investment and longevity risk to the issuing insurance company.
Annuities deserve consideration — not as a replacement for market-based investing, but as a complementary sleeve in your retirement income pie.
Annuity Disclosure: Annuities are subject to the claims-paying ability of the issuing company and may involve fees, surrender charges, and other costs. Suitability depends on individual circumstances and should be discussed with a licensed financial professional.
Scenario: Pension, Social Security, and Additional Guaranteed Income
If you already have a pension and Social Security, should you still consider more guaranteed income? The answer depends on your comfort level and goals.
First, calculate your total fixed and variable monthly expenses. Then determine how much of that income you’d like to have guaranteed, no matter what the markets do.
Example:
Total monthly expenses: $8,000
Pension: $4,000/month
Social Security: $2,000/month
Remaining gap: $2,000/month
If you want that remaining $2,000 to also be guaranteed, you could allocate part of your assets to an annuity or other guaranteed product to fill that gap.
Some retirees prefer to cover only their fixed expenses with guaranteed income, while others feel more comfortable covering both fixed and variable expenses. The choice comes down to your personal comfort level and the lifestyle you envision.
The Retirement Income Pie
Diversified retirement income can be thought of as a pie with three slices:
• Guaranteed Income – Pensions, Social Security, Annuities
• Growth Assets – Market-based investments for long-term growth
• Reserves – Cash or cash equivalents for short-term needs
Retirement Income Pie: Balancing Guaranteed Income, Growth, and Reserves
Conclusion: Why Both Approaches Deserve Consideration
A fiduciary advisor’s responsibility is to present all reasonable strategies that may help you meet your retirement goals. That means considering both:
• The market-based portfolio approach
• Guaranteed income solutions
Your final decision should reflect:
• Your risk tolerance
• Your desired lifestyle
• Your comfort with market fluctuations
• Your long-term income needs
Disclosure
This content is provided for educational and informational purposes only and does not constitute individualized financial, tax, or legal advice. Insurance products contain fees, costs, limitations, and exclusions. Policy performance and benefits depend on the specific contract, issuing carrier, funding, and assumptions. Consult qualified professionals regarding your specific situation.
© 2026 Ametrine Wealth Strategies, LLC. All Rights Reserved.
Written and developed by Amine Mabsout, CRPS®, AWMA®, RFC®, LACP — Founder of Ametrine Wealth Strategies.