Designing an asset allocation to accumulate assets is fairly simple. Once you need to draw income, or "decumulate" assets, however, a whole new approach to your retirement asset allocation is needed.
Below are three research proven approaches to putting together an asset allocation appropriate for the purpose of producing retirement income.1. Traditional Asset Allocation Using Withdrawal Rate Rules
This is a traditional approach to retirement asset allocation, meaning it uses stocks (or stock mutual funds), bonds and cash. What makes it work is six specific withdrawal rate rules to follow.
The rules designate the maximum amount that should be in stocks verses bonds, and how you go about drawing income depending on the investment results you have experienced.
2. Retirement Asset Allocation Using Products That Guarantee Income
The goal of this retirement asset allocation approach is to maximize lifetime income.
Research supports that if you replace a portion of your traditional stock and bond investments with a product that guarantees a specific amount of lifetime income, you are likely to draw a higher amount of income over your life expectancy than following an approach that offers no guarantees.
3. The Income For Life Model
The Income For Life®Model approaches retirement asset allocation by dividing your investments up into six buckets, each designed to provide income for a specific five year segment of your retirement.
There is a movie you can watch that explains this strategy in simple terms that make it easy to understand. I highly advise you check it out.
