October 23, 2009 by tfroberts

Business Week recently cited a Fidelity survey showed people between 55 and 70 say that what matters to them in retirement is income. 85% said guaranteed income was more important than above average returns. Another survey of individuals over 50, who contribute to a retirement plan, said the most important considerations were; 83% steady income; 72% stable income even if markets go down; 66% access to their money without penalties and 64% desire to get market growth.

No single financial product on the market can satisfy all of these desired considerations. I propose we stop looking for a "product" to fulfill retirement income needs and focus on getting a process in place, which can be flexible and adjust as life changes. This means finding a professional who can work with you to understand your income requirements, time spans and temperament. They must have the ability to combine several investments into a coherent solution. The user must also be willing to reevaluate the process periodically to make changes when life happens.

Consider using three buckets to hold different investments to perform specific tasks. First, fill a bucket with investments and assets that will generate a guaranteed income stream to cover basic expenses. Commonly this includes pensions, social security and annuities. The second bucket holds investments that overflow income to bucket 1 to cover inflation and expenses beyond the basics. Finally, bucket 3 holds assets that grow in value and be sold at opportune times to replenish bucket 2. With extended lifetimes, almost everyone needs to have some investments in bucket 3. Bucket 2 must have enough in it to assure it will not need replenishing when markets are down, forcing selling the growth investments in bucket three.

This process can be set up to provide a secure, stable income, maintain the ability to withdraw money without penalties, participate in the market and manage the tax hit. Retirement planning has a lot of moving parts and unknowns. Find a qualified advisor who can help you develop a process that will fit your lifestyle rather than "buy" a compromise product that doesn't fit any of your requirements. Look for someone who will take the time to identify what you need, develop a strategic plan first, and then has the ability to choose from the many investment options available without being compromised by sales. Be aware that you will need to invest your time and pay for this advice. You can start at Garrett Planning Network, NAPFA, FPA or Cambridge Advisors. You can find lists of questions to use when interviewing at these sites.