Why Retirement Portfolio Design Should Be Flexible


There is one predominant reason why retirement portfolio design must be approached differently today than in previous years: There is an infant alive in this world, right now, who is expected to reach age 200.1

That’s the prediction from demographers researching life expectancy trends, according to Olivia Mitchell, a business economics and public policy professor who teaches at The Wharton School of the University of Pennsylvania and is the executive director of the school’s Pension Research Council.2

One of the main tenets of retirement income planning is to recognize that a portfolio is a living, breathing entity. It will independently change throughout time based on market forces, but you will need to step in every now and then to make structural changes as you age. For example, as you get older you may want to minimize your stock exposure and consider income-producing financial products, all while maintaining a diversified mix of investments, insurance and bank products.3

If this sounds too complicated, you could do what some of the pros recommend and stick to a specific portfolio formula. For example, consider the 90/10 portfolio advocated by Warren Buffett or the standard investment allocation used by Ivy League college endowment funds.4 There also are individual mutual funds designed to make it even easier, such as target-date mutual funds, which automatically transition assets to more conservative investments the closer you get to your retirement date.5

However, very likely, the best plan is to work with an experienced financial advisor who understands the market and has your best interests at heart. That’s where we can help.

Someone planning to receive retirement income for 30 years or longer should probably explore opportunities among income-producing investments, which are generally lower risk than investing in growth-oriented securities. One option is allocating a portion of assets to high-quality dividend growth stocks. This class of investments tends to have a long track record for increasing dividends each year, even during market declines when their share prices drop.6 It is important for investors to understand that dividends are paid at the discretion of the board of directors and are not guaranteed.

It’s also important for a retirement portfolio to have an allocation dedicated to liquid or highly accessible assets. According to analysts in a recent T. Rowe Price Report, retirees may consider devising two separate short-term account allocations. A “tier one” account would address immediate cash needs, meaning money should be placed in bank checking, money market or savings accounts.

“Tier two” funds would be available for cash requirements within six to 12 months. This might cover periodic homeowner’s insurance bills, property taxes or long-term care insurance premiums. This allocation may include money market mutual funds and/or short-term bond funds.7

There are currently three types of financial vehicles that can provide income for life, no matter how long you live. The first is Social Security, but benefits are designed to supplement income, not be the only source. The second is a company-sponsored pension, but these are far less common today and are not expected to be as robust as in the future.

The third option is an annuity, which is gaining traction because of its availability for most people. In fact, the most recent recommendation by many researchers is to include a deferred lifetime income annuity as a default option in employer-provided 401(k) plans. This would give the average rank-and-file employee the opportunity to build a guaranteed lifetime income stream throughout his her or career.8



Content prepared by Kara Stefan Communications.

Knowledge@Wharton. July 22, 2019. “Living Longer, Saving Less: What it Will Mean for Retirement.” https://knowledge.wharton.upenn.edu/article/preparing-for-retirement/. Accessed July 29, 2019.


3Barbara Friedberg. U.S. News & World Report. Feb. 13, 2019. “5 Ways to Build a Conservative Investor’s Portfolio.” https://money.usnews.com/investing/investing-101/articles/ways-to-build-a-conservative-investors-portfolio. Accessed July 29, 2019.

Simon Moore. Forbes. March 28, 2019. “6 Expert Investment Portfolios You Can Implement Today.” https://www.forbes.com/sites/simonmoore/2018/07/26/six-expert-investment-portfolios-you-can-implement-today/#1128951274b2. Accessed July 29, 2019.

Coryanne Hicks. US News & World Report. June 17, 2019. “How to Pick Investments for Your 401(k).” https://money.usnews.com/investing/investing-101/articles/how-to-pick-investments-for-your-401-k. Accessed July 29, 2019.

Chuck Carnevale. SeekingAlpha. July 19, 2019. “Principles For Designing A Dividend Growth Portfolio For Retirement: Part 1.” https://seekingalpha.com/article/4275990-principles-designing-dividend-growth-portfolio-retirement-part-1. Accessed July 29, 2019.

Joseph K. Lynagh and Whitney H. Reid. T. Rowe Price. Summer 2019. “Aligning Allocations

With Cash Needs Is Often Overlooked.” P. 6. https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/price-report-summer.pdf. Accessed July 29, 2019.

Rebecca Moore. PlanSponsor. July 24, 2019. “Researchers Propose Including Annuities as a Default in 401(k)s.” https://www.plansponsor.com/researchers-propose-including-annuities-default-401ks/. Accessed July 29, 2019.

Annuities are insurance contracts designed for retirement or other long-term needs. They provide guarantees of principal and credited interest, subject to surrender charges. Annuity guarantees and protections are backed by the financial strength and claims-paying ability of the issuing insurance carrier.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

 The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.


Ready to Take The Next Step?

For more information about any of the products and services listed here, schedule a meeting today or register to attend a seminar.

Or give us a call at 314.909.1116