Optimized Personal Retirement Income Strategy

June 3, 2021 | Stephan Granitz, Chief Analytics Officer

Maximizing a household’s after-tax safe retirement income1 or legacy

Key point

Generic, mass-manufactured solutions relying on simplistic assumptions work for accumulation. However, retirement income planning requires personalized solutions, co-optimizing across all available levers including Social Security, pension settlement options, lifetime income products, investment strategy, and dynamic tax efficient strategies to maximize safe after-tax retirement income. A retirement income plan needs to be presented in a simple, easy-to-understand format so an investor can take action without getting lost in the underlying complexities.

Example household 

Edward (age 62) and Samantha Perch (age 60) are both planning to retire in 2022. They have accumulated $1.9MM split between taxable non-qualified accounts and qualified tax-deferred and Roth retirement accounts. Samantha also has a $400K pension which can be taken as a lump sum at Samantha’s retirement or converted into $2,150/month lifetime income.

The Perch family wants their base spending to be $120K/year (growing 1% slower than inflation) with each needing $5K/year in additional health care expenses (growing 2% faster than inflation). Following a typical strategy, Edward and Samantha can only safely spend $112K/year, 7% less than they want. A typical strategy, followed by most Americans, will keep the investment allocation constant after retirement, claim Social Security upon retirement, not purchase lifetime income or annuities, and take the pension as a lump sum. Safely means that the household has a 90% opportunity of fully meeting the income requirement into their mid-90s.

By taking Social Security on retirement and the lump sum option for their pension, there is a lot of pressure on the investment assets (SWP) to meet a majority of the Perch’s income requirements. Without professional help, Edward and Samantha take sequential disbursals from their taxable accounts through their 60s while the qualified balances grow, resulting in large RMDs and increased taxes in their 70s and 80s. 

Since investors become increasingly loss averse as they enter retirement, Edward and Samantha need a holistic retirement income plan that will build their guaranteed income base, reduce pressure on their volatile assets, and make withdrawals from their SWP in a tax efficient manner.

Guaranteed Lifetime Income 

Possible options for increasing the Perch’s guaranteed income base include deferring Social Security, turning their pension into lifetime income payments, and allocating a portion of their SWP into a lifetime income product such as a deferred income annuity or a fixed indexed annuity with a lifetime rider. 

Some investors may initially shy away from these solutions as it could drastically reduce their net worth in the initial years of retirement. Instead of having an immediate income check from Social Security and $2.3MM in assets (SWP + pension lump sum), they could need to wait nearly a decade for Social Security to begin and have $1.14MM in liquid assets (if they annuitize 40% of their SWP and turn the pension into lifetime payments).

Advisors need to reframe the conversation to focus on Safe Retirement Income – an income that has 90% opportunity of being available in the client’s mid-90s. The focus cannot be on abstract concepts like probability of success and withdrawal rates, but instead on protecting the retiree from their key risks and delivering reliable income with a proven method to monitor that income and make adjustments if needed. To further ease a retiree’s concerns, products like variable or indexed annuities with lifetime riders can be used in place of straight annuitization to reduce the immediate impact on net worth.


Once the guaranteed base is built, the focus turns to managing the remaining SWP to maximize the income generated from the assets and meeting any bequest goals. Accumulation strategies of seeking the maximum return for the volatility acceptable to the investor are not sufficient in retirement income planning. Once decumulation begins, sequence risk becomes an issue and investors often are better off reducing volatility, but allocation is only part of the story. Investment strategies need to include dynamic tax-efficient disbursals across non-qualified, qualified, and Roth accounts along with Roth conversions and capital gains management.


A unified income strategy, combining these powerful dynamic tax-efficient strategies with building the guaranteed income base, can help control the risks facing Edward and Samantha as they enter retirement. As shown, by following a typical strategy and without professional management and monitoring, Edward and Samantha either face a high risk of depleting their funds or need to spend considerably less than desired. This is not a palatable choice but fortunately these are not the only options. 

Lifestyle vs Legacy

The Perch’s personalized, optimal strategy will depend on whether they want to maximize their spending in retirement or the amount they leave to their heirs.

If the Perchs want to maximize their lifestyle in retirement, they can safely spend 30% more than following a typical strategy, and 22% more than they requested, while reducing their overall risk and without sacrificing their average legacy. This is achieved by deferring both members’ Social Security benefits until they are 70 years old, moving 40% of their assets into a fixed indexed annuity, allocating the rest of their investments in a conservative glide path portfolio, using full capital gains management and tax-targeted qualified disbursals at a 12% incremental effective tax rate.

However, if the Perchs are satisfied with their planned spending and do not want the increase, they can instead focus on maximizing their legacy. They can safely have their desired spending and increase their average after-tax legacy to nearly $2MM in today’s purchasing power. With this focus, the Perchs no longer purchase an annuity or turn their pension into lifetime income. Instead, they take the pension lump sum and invest their SWP in a more aggressive growth glide path portfolio while still utilizing the 12% targeted qualified disbursals and capital gains management strategies.

1 Safe retirement income is the amount of income that has a 90% opportunity of being available into a retiree’s mid-90s. Safe retirement income consists of all sources of income (not just guaranteed sources): Social Security benefits, pension payments, lifetime income payments, withdrawals from investments and any other incoming cash flows, such as part-time work and rental income. Safe retirement income is increased by Social Security retirement benefit claim deferral, purchase of annuities, changing investment portfolio asset allocation and other strategies. The amount of increase and the optimal strategy varies depending on the individual circumstances, annuity payout rates and capital market return expectations.

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