Structuring assets to ensure sufficient income, typically by balancing growth (e.g., stocks) with preservation (e.g., bonds or CDs) to avoid outliving savings. Effective management often includes a "royal reserve" (cash buffer) to manage the sequence of returns risk during market downturns.
Key Components
Income Strategy: Creating a sustainable income stream often involves a portfolio mix that covers expenses without depleting the principal. A commonly cited rule is the 4% withdrawal rate, where e.g., $500,000) could generate around $20,000 annually.
Asset Allocation & Risk: A portfolio should be tailored to individual goals and risk tolerance. While traditional advice might suggest a 60/40 split (stocks/bonds), those with guaranteed income sources (like pensions) might adopt, for example, a more aggressive 80/20 allocation.
Managing Risk: Protecting against market volatility (sequence of returns risk) is crucial early in retirement, particularly using cash reserves as a buffer when markets drop to avoid selling at a loss.
Account Types: Management occurs within various tax-advantaged vehicles, including 401(k)s, IRAs, and specialized accounts like SEPs.