Editor’s note: Many advisors are trying to find ways to help clients find lifetime income. This is one firm’s strategy to address this issue.
As financial advisors, we know that few concerns weigh more heavily on our clients’ minds than the fear of outliving their money. Despite decades of diligent saving, many clients wrestle with uncertainty about whether their nest egg will truly sustain them through what could be 25 years, or more, of retirement. This uncertainty is well-founded given all of the dynamics at play today: market volatility, historically low interest rates, tariffs and other shifting government policies that have made traditional retirement models increasingly risky.
The conventional 60/40 portfolio, paired with a 4% withdrawal rate, served previous generations adequately. However, this approach carries significant shortcomings today. Bond yields have plummeted, undermining a key income component. More critically, this traditional model fails to account for sequence of returns risk, the potentially devastating impact of market declines during early retirement years when clients begin withdrawing funds.
One stat is particularly relevant and sobering: the S&P 500 declines by at least 10% every 1.84 years on average. When retirees are forced to take distributions during these downturns, they can rapidly deplete their portfolios in ways that compromise long-term income generation and financial security. This creates a very real shortfall risk — the possibility that clients will outlive their money.
Redefining ROI for Retirement
As clients transition from the accumulation to decumulation stage, they need a fundamental shift in perspective. For retirees and soon-to-be retirees, ROI has two definitions. During their working years, ROI meant “Return on Investment,” but in retirement, it must transform to represent “Reliability of Income.” The primary question shifts from: “How much can my portfolio grow?” to “Can my portfolio generate the income I need for the remainder of my life?”
This is where our Lifetime Income Model (LIM), come into play. It’s a strategic framework specifically designed to address common retirement challenges. The model represents a departure from traditional retirement planning by harnessing the power of time segmentation. Rather than viewing a client’s portfolio as a single pool of assets, the LIM divides retirement savings into distinct chronological segments, generally spanning five years each.
Here’s how it works.
The first segment contains the most conservative investments focused on capital preservation and liquidity. This money will fund the client’s first five years of retirement expenses, providing reliable income without exposure to market fluctuations.
Each subsequent phase increases slightly in both risk and growth potential. The second stage might include more conservative income-producing assets, while later incorporating progressively more growth-oriented investments.
As the first segment is depleted, assets from the second replace the first stage and are repositioned into more conservative investments. This process continues throughout retirement, resulting in a “time release” methodology.
Addressing Shortfall Risk
The Lifetime Income Model’s time-segmented structure offers several critical advantages to help protect clients from retirement shortfalls. Here’s how:
Insulation from Sequence of Returns Risk
By allocating short-term income needs to conservative investments, clients don’t need to withdraw from growth-oriented assets during market downturns. This addresses the most significant threat to retirement security — the forced liquidation of assets when markets are down.
The five-year conservative segment serves as a buffer, providing clients with the luxury of time. This five-year period isn’t arbitrary. Historically, market cycles tend to complete within five-year periods, giving growth assets adequate time to recover from downturns before they’re needed for income. The ultimate goal of the model is to ensure that a client never takes an income distribution from a down position in their portfolio.
Psychological Protection Against Panic Selling
As advisors, we’ve all had to reassure clients during periods of extreme volatility, such as the dot-com bust, 9/11, the Great Recession or during the COVID pandemic. When market volatility rears its ugly head, as it inevitably will, clients can remain confident knowing their immediate income needs are secure. This can significantly reduce the likelihood of emotional, knee-jerk decisions that might otherwise derail their retirement strategy.
During the aforementioned major market corrections, countless investors abandoned their long-term strategies out of fear, locking in losses and missing subsequent recoveries. The LIM’s structure acts as a firewall against such emotionally driven decisions.
Maximizing Long-Term Growth Potential
By keeping longer-term assets invested more aggressively for extended periods, the LIM maximizes growth potential. This approach is particularly valuable given increased longevity, as clients need strategies that continue building wealth even while in the distribution phase.
Rather than forcing clients to dramatically reduce risk exposure across their entire portfolio at retirement, the model allows for continued meaningful growth while still delivering immediate income security. This approach reinforces and applies the concept of “time in the market” versus “timing the market”.
Implementation in Your Practice
Implementing the LIM begins with comprehensively analyzing your client’s anticipated retirement expenses and their guaranteed income sources such as Social Security, pensions or annuities. Any resultant gap between these figures represents the income need that the model will address.
By carefully time-segmenting clients’ portfolios, you create a visual and intuitive framework that clients can easily understand. This clarity helps alleviate the uncertainty that often surrounds retirement planning and gives clients the confidence they need to enjoy their retirement years.
The LIM transforms the retirement planning conversation from abstract market performance metrics to concrete income reliability. The performance benchmark for success is not measured against the major market indices, but rather against the implemented retirement plan. Instead of worrying “Will I have enough?” clients can focus on, “What should I buy the grandkids?” This shift in focus represents the inherent value of comprehensive retirement planning.
From Uncertainty to Assurance
As financial advisors, an increasingly important part of our role is to guide people through life’s most critical financial transitions. Retirement is one of the biggest, and the LIM gives us a tool that addresses it head-on.
With LIM, we give clients more than a number. We offer them a plan they understand, trust and can stick with, even when markets test their resolve. We can protect them from the greatest threat to their retirement dreams — running out of money too soon.
That’s a legacy worth building.
Stephen Kolano, CFA, Chief Investment Officer, and Derek Chesley, Advanced Planning and Case Design Specialist, at Integrated Partners, a national financial planning and registered investment advisory (RIA) firm
