Discover Your Retirement Income Style: A Personalized Approach

As we've discussed, there isn't a one-size-fits-all approach to retirement income planning. Your individual preferences, goals, and comfort level with risk play a crucial role in determining the strategies that are right for you.

Relying on generic rules of thumb, such as the "4 percent rule" for withdrawals, does not guarantee a successful retirement outcome, as these rules are often based on historical averages and may not account for your unique circumstances. Even the concept of a universal "safe savings rate" requires personalization, as guidelines need to be tailored to the individual.

This is where the Retirement Income Style Awareness (RISA®) Matrix becomes a valuable tool. It helps individuals and their advisors understand these preferences and align them with suitable retirement income strategies. The RISA® Matrix aims to provide a systematized way for individuals and advisors to quickly understand if they are speaking the same language and to find retirement income strategies best aligned with a preferred style.

The RISA® Matrix considers two main factors that capture an individual’s retirement income style:

Probability-Based vs. Safety-First (PS): This factor explains whether individuals are more comfortable with market growth and the potential for greater returns, or with contractual protections as an income source for their essential retirement spending. Those leaning towards Safety-First often seek to eliminate risks to essential expenses using contractual guarantees. In contrast, Probability-Based approaches accept market volatility, relying on historical returns to calculate the likelihood of sustaining withdrawals from investments.

Optionality vs. Commitment (OC): This factor describes whether individuals place emphasis on keeping options open so they can make changes or whether they prefer to commit to a strategy known to solve for a lifetime retirement goal. It reflects your desire for flexibility and control over your assets versus a preference for committed, guaranteed income streams.

Based on your preferences along these two scales, the RISA® Matrix identifies four distinct retirement income styles:

Total Return (Probability-Based & Optionality): Individuals prefer relying on a diversified investment portfolio and taking ongoing distributions to fund expenses. They are comfortable with market growth and want to maintain flexibility. This approach seeks to maximize risk-adjusted returns from the total portfolio.

Income Protection (Safety-First & Commitment): Individuals seek contractual protections to support their spending and are comfortable committing to a strategy that solves for a lifetime need. This typically involves using guaranteed income sources like annuities to cover essential expenses, thus addressing longevity risk and reducing exposure to market volatility and sequence of returns risk.

Risk Wrap (Probability-Based & Commitment): This hybrid approach blends investment growth potential with guaranteed lifetime income benefits, often through variable annuities or fixed index annuities with guaranteed withdrawal benefits. It provides guardrails and a commitment to a lifetime strategy while maintaining market exposure.

Time Segmentation (Safety-First & Optionality): This involves dividing money into different "buckets" for short-term (contractually-protected instruments like cash equivalents), intermediate-term (bonds), and long-term expenses (diversified investment portfolio). This offers contractual protections for nearer-term needs while retaining flexibility for long-term assets.

It's important to understand that while each of these approaches is viable, "the right starting point is the one that is most aligned with an individual’s preferences". This personalized approach leads to greater confidence and reduced anxiety about your financial future, as you're more likely to stick to a plan you are comfortable with. Notably, research indicates that approximately 67% of individuals are looking for strategies that extend beyond a purely Total Return investing approach, often seeking greater contractual protections and commitments for their essential expenses.

To discover your Retirement Income Style Awareness (RISA®) Profile and develop a comprehensive, personalized retirement income plan, it’s highly beneficial to work with a qualified financial advisor. They can help you assess your unique goals, financial situation, and risk tolerance, and then integrate multiple income sources—including Social Security, pensions, investments, annuities, reverse mortgages, and even whole life insurance cash value as a volatility buffer—into a strategy tailored specifically for you. This holistic and integrated approach ensures your plan effectively manages key retirement risks like longevity risk and sequence of returns risk, aiming for higher and more sustainable income and a potentially greater legacy.

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