Today, I met my investment soul mate. You see investing for retirement income is different. You are exposed to a different set of risks, like sequence risk (the risk that you have a bad sequence of returns early on in your retirement years) and longevity risk (the risk of outliving your assets).
In addition, if you're smart you need to be strategic about which accounts to take money out of in which years. That means each account needs to be allocated in a manner to match the expected cash flows that will come out of it.
This requires a process that is different than traditional asset allocation that you use when you are accumulating assets. It takes more work, more research and a different way of managing and rebalancing the portfolio - according to what matters - your goals.
I met a company this week that handles this process brilliantly. They wrote a book called Asset Dedication where they share their process. They have a company by the same name as their book, Asset Dedication, which offers investment solutions for advisors who work with clients who are in or nearing retirement.
They use CDs and individual bonds to meet your near term cash flow needs - this design protects this part of your portfolio from rising interest rates - whereas if you are using bond funds you won't have that type of insulation from rising rates.
Then they have a smart process they call Critical Path® that tells them when to move assets from the growth portion of your portfolio to replenish CDs and bonds that have been used for near term cash flow needs.
Their client reports are phenomenal and their investment process is the most thoughtful, well-designed, and thoroughly researched process I have yet to come across on the retirement income side.
I will be working with them to figure out how to implement their process for my clients as it is honestly the smartest retirement investing approach I have ever seen.