Retirement Income is a process, rather than product.

Most people think of their investment portfolio as “principal,” “dividends,” “interest,” “capital gains,” etc. However, this view looks at money as if money knows where it came from. Money is fungible (fungibility), it is interchangeable and does not “know” its source.

Another common perception is the need to protect principal and live off of dividends and interest. In low interest rate environments the income would be low sentencing the retiree to lower living standards than planned for. A Total return approach looks at the whole package of your resources and recognizes that you shouldn’t spend it all in one year, and thus a broader management of the overall resource is needed for multiple years.

Current research, of which I am a contributor and thought leader, measures sustainability of your entire portfolio over your remaining lifetime. The key ingredient is to recognize that your spending behavior is the primary driver of portfolio longevity simply because, no matter how much Wall Street wants you to think otherwise, that nobody can control market returns or the economy that tends to support them.

So, what does a retirement withdrawal process look like?

 

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