top of page

Why simplicity is key to retirement income planning

Here are some of the most common Retirement Income Strategies.  

  • The Bucket Strategy

  • The 4% Withdrawal Rate

  • Dividend Income

  • Social Security + Walmart Greeter

Each of these strategies has it's pros and cons.  I don't plan to dig into the details of each in this article. 

My goal today is to explain the value of simplicity with your Retirement Income Plan. 


It's important to understand that whatever strategy that you choose now needs to also make sense when you're in your 80's & 90's

Let's start with a story


Here's my dad, "helping" me prep for a cross country motorcycle trip a few years ago.  

We're both a bit older now. 

My hair has thinned a noticeable amount and my dad, well... 

He's 80 now and his memory is noticeably slipping. 

He has Social Security, a small pension and money in the bank.  

This plan is simple enough and it works for him. 

But, there are some concerns.  

  • He loses his phone on a regular basis. 

  • He calls grand kids by the wrong names occasionally. 

  • If a movie has more than one plot, it's "too much" to follow.  

This WILL happen to you too...

I'm not saying that you will completely slip mentally. But, some slippage is inevitable for all of us. 


This eventual "mental slipping" (I believe) should be accounted for in your retirement income plan. 

This is one reason why you need a simple to understand Retirement Income Plan! 

Transitioning to Retirement will be much harder than you think. 

You've spent 30+ years building a set of financial habits.  

A set of habits that Retirement will turn completely on it's head. 

Retiring is one of the biggest life changes that you'll go through.


I believe that the key to a successful retirement transition is allowing you to continue to keep your bank account and your investments separate.  


Make Money

Save Money

Invest Money

DON'T TOUCH that money



Is it okay to spend money? 


What about losses? 

Do you still save when you're retired?

How do I get paid? 

Based on my experience, this transition to a new set of habits is probably going to be much more difficult than you may be thinking

Because the retirement transition can be so overwhelming, I believe simplicity is key to a manageable retirement income plan. 

Ponder this question for a minute:

How many times have you heard a pensioner complain about retirement? 

My recommended Retirement Income Plan

I believe pensioners have the best retirements.


Income is regular, predictable and often times enough to (or close enough) to cover the monthly bills. 

If you've been a diligent saver for retirement and you live within your means, you can likely comfortably survive off of Social Security and a small draw from your investments

You don't need a large investment account if Social Security and pensions cover most or all of your monthly expenses. 

But what if I don't have a pension? 

You make it yourself with an Annuity.  

Did he say annuity?  

If this is your reaction, let's first dispel a few myths. 

Proper understanding of annuities will help you understand the basis of this recommendation.  

First of all, there are three main types of annuities.  

1) Variable annuities are tied to the stock market. Typically these annuities: 

  • can be costly

  • can be complicated

  • can carry a large commission. 

2) Fixed (Fixed Indexed) annuities either give you a fixed rate of return, or a return tied to the stock market (that doesn't go negative). Typically these annuities: 

  • can be less costly than a variable annuity

  • can be less complicated than a variable annuity

  • can have commissions similar to variable annuities. 

3) Income annuities are setup to start paying you income immediately, or at a predetermined time (deferred).  Typically these annuities: 

  • have much lower fees than options 1 & 2.

  • are fairly simple to understand since they just pay you income.

  • have commissions that are usually less than half of options 1 &2.


An Income annuity is what you'll use to create your "pension"


Academic research suggests that the Income Annuity offers one of the most stable and predictable sources of retirement income1 

Back to the strategy

High level how this strategy works.

Step 1 to any retirement income plan is to MAXIMIZE your SOCIAL SECURITY. 

70 30.jpg

Step 2 is to buy an income annuity to fill the "gap" between your Social Security income and your essential expenses.  

This is purchased from the   Bond portion of your portfolio. 


If you're in the above 70/30 portfolio, typically an income annuity will pay you a higher rate of return than the bond portion of your portfolio.   

Step 3: Mange your monthly budgets as you always have. The money you need to pay essential expenses is deposited into your bank account just like your previous paycheck. 

What this actually looks like

I find it helpful to segment your finances into two high level categories.

  • Your Income (day to day)

  • Your Investments (long term)

Similar to how you thought of finances pre-retirement, right?

Your Income 

Your Investments

Social Security = $2,500 

Income Annuity = $1,500

Total reliable income = $4,000

70 30.jpg

Prior to purchasing the income annuity, you had a $1 Million portfolio, split 70/30 or:

  • $700,000 in stocks

  • $300,000 in bonds

After purchasing the income annuity, you still have a $1 Million portfolio, but we used the bond portion to buy the income annuity. 

Now you have:

  • $700,000 in stocks

  • $300,000 used to buy income

Note: This is overly simplified to show high level how this strategy works. 

The income annuity could cost more or less than shown. 

Your leftover portfolio could still be rebalanced to add more bonds. 

There are a number of other variables that could be adjusted for your specific situation. 

Where this strategy shines

The market will have it's inevitable downturns, even during your retirement years. 

Annotation 2020-05-19 141003.jpg

While the value of your investment portfolio will suffer and decline, your income does not

This, I believe, is the the most important component of this strategy.  

Do a google search on the "value of working with a financial advisor." 

You will find a number of studies. Most of the studies rank "behavioral coaching" or "retirement spending plan" as the largest value adds from working with an advisor. 

Imagine your emotional response, your comfort vs. fear response when the market drops by 30% during retirement. 

When your income is not tied to the stock market

Untitled drawing (1).png

When your income is tied to the stock market

Untitled drawing.png

You may have 30+ years of investment experience at this point. But, I'm betting that this is your first intersection of:

  • not working for a paycheck

  • using your investments to create a paycheck

  • a large drop in the stock market

This is where the Behavioral Coaching and Retirement Spending Plan are important.  

When your income is not tied to the stock market

You tend to feel:

  • safer

  • more confident

  • less worried

When your income is tied to the stock market

You tend to feel:

  • exposed to "what if's"

  • less confident in the market

  • more worried

By having income that is stable and predictable, I believe you are better able to manage a stock market drop because you aren't "forced" to make any lifestyle changes during bad markets. 

I believe that the way we think about our finances is a key driver to our financial success. 

I love this retirement income plan because:


  • It's simple and predictable. 

  • It still makes sense when you're 90 years old.

  • It allows you to continue to have a mental separation between your bank account and your investment account. 

Every month, your Social Security is deposited into your account. 

Every month your annuity "pension" income is deposited into your account. 

Your day to day budgeting remains the same as it always has. Your "paycheck" is direct deposited and you budget the same way you always have. 

Your stock market investments still remain as a "separate" thing in your head which allows you compartmentalize your thoughts and make wiser investment decisions. 

To sum it all up:

If you are interested in learning more about creating a retirement income plan, but don't know how to get started feel free to schedule a phone call.  We're happy to help...

We're a different kind of financial firm than you may be used to. ​

bottom of page