Embracing the Time Segmentation Style (RISA®)

Scott Sullivan |
Categories
Retirement
Retirement Income

Following our discussions on the Total Return, Income Protection, and Risk Wrap Styles within the Retirement Income Style Awareness (RISA®) Matrix, let's now delve into another distinct approach: the Time Segmentation Style.

The Time Segmentation Style occupies the upper-left quadrant of the RISA® Matrix. This indicates a unique blend of preferences:

  • Safety-First Orientation: You desire contractual protections to support your spending needs, prioritizing security and reliability in your income sources.

  • Optionality Orientation: Despite your preference for safety, you also value the flexibility to change strategies or accommodate ongoing life changes. You prefer to keep your options open rather than committing to a rigidly structured plan.

Strategies and Core Beliefs for the Time Segmentation Style

For individuals who align with the Time Segmentation Style, the strategy typically involves a "bucket" approach to managing their assets:

  • Segmenting Funds into Buckets: This approach divides money into different categories or "buckets" based on when the funds will be needed.

    • Short-Term Bucket: This segment is allocated for immediate spending needs. It often utilizes contractually-protected instruments like cash equivalents or government-issued securities to ensure stability and safety. Period-certain income annuities can also be an option for short-term income.

    • Intermediate-Term Bucket: This segment covers expenses that are needed soon but not immediately. Bond ladders are a common tool for this bucket, as are deferred fixed annuities, such as multi-year guaranteed annuities (MYGAs) or fixed index annuities without living benefits, which provide principal protection and tax deferral.

    • Long-Term Bucket: This segment holds a diversified investment portfolio (e.g., stocks, bonds) for long-term growth potential, designed to cover expenses much further in the future.

  • Replenishing Buckets: Over time, the longer-term portfolio can gradually replenish the shorter-term buckets as they are spent to cover retirement expenses.

  • Behavioral Comfort: The value of this strategy lies in its behavioral aspect. By providing short-term spending protections, it can help retirees with this style feel more comfortable holding a growth-oriented portfolio for their long-term needs, preventing panic during periods of market volatility.

  • Hybrid Approach: Like the Risk Wrap, Time Segmentation is considered a "hybrid" approach because it balances the desire for contractual protections with the need for flexibility, which can be a less natural mix of preferences.

Prevalence and Key Characteristics

Research indicates that the Time Segmentation Style is less common than Total Return or Income Protection, generally aligning with approximately 17% of individuals. Demographically:

  • It is slightly more common among single individuals (20%) compared to married individuals (16%).

  • There is no statistically significant difference in preference for this style across different age cohorts (50-80 years old) or between those who are retired versus not retired.

  • Its prevalence does not show significant statistical differences across varying net worth levels.

Individuals with a Time Segmentation style tend to exhibit a strong link to a "Back-Loading" preference, indicating a greater concern about longevity risk (the fear of outliving assets) and a desire to preserve spending capacity for later stages of a potentially long retirement. They also show a strong link to a "True Liquidity" mindset, preferring to have assets specifically earmarked as reserves for future unknown events, such as buffer assets or insurance.

Your RISA® profile reflects stable preferences that tend to remain consistent as you age or retire. Understanding your alignment with the Time Segmentation Style, or any other RISA® style, is a crucial step in developing a personalized retirement income plan that truly resonates with your comfort levels and goals, leading to greater confidence and reduced anxiety about your financial future.

To discuss your unique RISA® Profile and explore how the Time Segmentation approach, or any other style, might fit into your comprehensive retirement income plan, please feel free to reach out.

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