The blended approach of strategies, customized to suit each person's situation, when combined with insurance strategies, provides a better outcome. It is essential to:
- Determine essential vs. discretionary expenses and legacy objectives.
- Fill gaps between Social Security (plus any other pension income) and essential expenses, preferably using an annuity to eliminate the longevity risk for needed guaranteed income.
- Ensure adequate life insurance and LTC insurance for the no-go phase. Premiums for these are a part of essential expenses.
- Divide remaining assets to be used for discretionary spending using the bucket plan — “now” (the next 1-2 years), “soon” (3-5 years), and “later” (years 5-plus) and invest in capital preservation, fixed income and growth equity strategies respectively.
- 20/30/50 asset allocations seems to offer an ideal balance.
- Optimize allocations and distributions by using a tax-diversified approach of taxable, tax-deferred, and tax-free assets.
The portfolio created for a retiree factoring in the above methods should be designed to generate about 6% income for the go-go phase and provide about 4% income for the slow-go stage.