For prospective retirees who don’t simply want to annuitize most or all of their wealth, determining how best to invest a retirement portfolio to generate income is a substantial challenge. Not only because of the need to invest for enough growth to sustain inflation-adjusting retirement distributions over time, and managing portfolio volatility to avoid triggering an adverse sequence of returns in the first place… but also because, as retirement investing has evolved beyond simple strategies like “buy the bonds and spend the coupons” and into more total return strategies, it’s surprisingly difficult to come up with a system to actually generate the distributions themselves.
After all, most prospective retirees who are looking at making the transition away from work have spent the better part of 40 years paying their ongoing bills from a steady series of monthly or perhaps bi-weekly paychecks. Which means the most straightforward way to facilitate retirement is simply to re-create those ongoing retirement paychecks. Except as noted, modern retirement portfolios – especially those that include both income and growth (i.e., capital gains) components – aren’t necessarily conducive to generating consistent retirement paychecks. At least not without creating a system behind the scenes to ensure the cash will be there as needed.