Its All About the Income

Key Takeaways

• Build a 3-5 year income reserve in a safe account (separate from growth investments) so you can avoid selling stocks at low prices during market downturns and instead withdraw from your safety bucket
• Stop thinking of safety as keeping principal stable—instead define safety as having income in the future that keeps pace with future cost of living, which requires some exposure to equity growth to combat inflation over 25-30 years
• Retirees should expect stock-heavy portions of their portfolio to be negative 1 out of 4 years and 10% drops almost every 12-month period, but historically gain in 3 out of 4 years with the most common return exceeding 20%
• Calculate your actual pre-tax annual expenses first, then build a retirement income plan combining three elements: safety of principal, reliability of income (Social Security, pensions, annuities), and growth investments for inflation protection
• Consider immediate income annuities purchased from insurance companies as a way to create your own private pension if employer pensions aren't available, despite the psychological difficulty of converting large capital sums into monthly checks