The Retirement Income Process of Dividing Assets Between Income & Growth

Partitioning Income to Pay Expenses and Growth to Leave a Legacy

Most retirees will have essential bills to pay and special spending for events outside the budget items. Domestic spending is generally predictable, so it makes sense to match these expenses with a reliable stream of income.  That type of income can’t occur with certainty with bond interest and stock dividends alone. In most cases, portfolio principle is necessary to meet budgetary expenses. Over the years, portfolio principle begins to cannibalize itself to support the needs of a retiree.

That’s why it’s critical to have a guaranteed source of income that doesn’t correlate to the market and is insured contractually to generate revenue for the rest of your life. And to cover the ever-increasing costs of goods and services in retirement, an inflation element needs to be added, especially in light of the little to no increase in Social Security benefits over the last six years.

But first things first: you need to develop a budget to determine your monthly obligations and discretionary spending. Once you’ve determined your monthly budget, you can begin to explore lifetime guaranteed income products to match your monthly budget. There are three sources of lifetime guaranteed income: single premium immediate annuities, deferred annuities and indexed annuities with income riders. The strategy here is to see which annuity generates the most income with a cost of living adjustment rider.

These types of annuities are almost treated as online commodities on several web sites that support single premium immediate annuities and deferred annuities. You simply plug in your age, the inflation rate and your monthly budget total. Then the calculators will do the rest. If you don’t need immediate income you can use deferred annuities for income at a later date or indexed annuities with income riders, whichever is most suitable for your situation. 

But the goal here is to match guaranteed lifetime income with your guaranteed living expenses even if you live to age 100 or beyond.