A New Mindset For Income Distribution
A distribution plan focuses less on accumulating wealth and
more on making it last through retirement.

In terms of your finances, your pre-retirement earning years focus on accumulation and growth of your
money. You earn
money from your job or business to pay for your current living expenses. You set some
aside for emergencies and for future needs like college and retirement. Your goal is to accumulate as
much as possible by earning it and investing it.

After retirement, you typically no longer have money earned from your job or business to pay for your
living expenses. You need safety and liquidity to ensure available funds for day-to-day costs of living
along with growth to help ensure your funds last your lifetime. The growth-oriented portfolio structure of
your earning years may no longer apply, and you may have to change the way you evaluate your portfolio’
s performance.

In fact, in an effort to help reduce risk and protect principal, many retirees alter their asset mix to a more
conservative, income-based allocation. The result is a portfolio designed to provide higher rates of
current income and less volatility. Put another way, your need to preserve what you have now typically
outweighs your need to grow your money at a benchmark rate, although you still need enough growth to
ensure inflation doesn’t reduce your purchasing power during retirement.

Depending on your age, your investment tendencies may lean too far toward growth or too far toward
conservative income. If you’re at the leading edge of the Boomer generation, you may have experienced
years of significantly high market returns, skewing your expectations for your own portfolio toward the
high end.

If you’re in the senior or “veteran” age group, however, you may harbor some distrust of stocks and over-
confidence in bonds. Investors in this group also tend to underestimate their life expectancy, based on
how long their parents lived. By overweighting your portfolio in the relative safety of fixed income and
income investments, you increase the potential of outliving your money.

A retirement distribution plan seeks to find that middle ground between reduced risk and greater return,
taking into consideration all income streams (i.e.,
Social Security, wages, pensions, investment income,
annuity income), assets, inflation risk, investment risk and tax exposure. Numerous variables can come
into play, so each factor must be evaluated based on the individual situation.

Generally, a retirement distribution model will allocate a larger portion of assets to fixed income and
income segments, followed by growth and income, growth, aggressive growth and most aggressive
segments in progressively lesser percentages. The intended result is an inflation-adjusted income that
lasts your lifetime by minimizing emotional investment decisions, maintaining purchasing power,
minimizing risk, preserving principal and maintaining an appropriate amount of long-term asset growth.

As a reminder, asset allocation seeks to maximize the performance of your investment portfolio using
diversification and disciplined investing. However, using an asset allocation methodology does not
guarantee greater or more consistent returns or lower risk when diversifying among different asset

Creating a retirement distribution plan can be complex and requires a thorough understanding of
investment products and strategies and their associated risks. Your financial professional will help you
determine the asset allocation model and products that best meet your needs.
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Income Distribution