A Different Kind of Diversification Pays Off for Retirees
From: www.kiplinger.com
Retirement savers can get more income with less volatility using income allocation instead of asset allocation.
Before you take the leap into retirement, you want to feel completely confident that your money will last. It’s natural to want to be sure you have enough saved, but rather than focusing on savings, you should be looking at how you’re going to create income instead.
The goal: Create more income with less volatility. It’s something I’ve been studying, and I have some exciting results to share.
In Part I and Part II in this series, I suggested that you could receive more retirement income with less volatility if you and your adviser move from a strategy of asset allocation to one of income allocation. Asset allocation is the traditional strategy in which you strive to have diversified investments to maximize and protect your assets. Income allocation, on the other hand, is a strategy in which you put together a plan with different sources of income that will be reliable and lasting in retirement.
We conducted a study comparing the results between asset allocation and income allocation strategies under various assumptions as to the retiree’s risk profile and market outlook. Not only did we observe more retirement income and less volatility with income allocation, but we also saw generally higher economic returns. A copy of the study is available for free when you register on the Go2Income website.
Having a higher economic return in addition to the features and “soft benefits” described below, makes a strong case for the income allocation strategy.
