A fresh perspective on retirement income

The average life expectancy in the United States is nearly 80 years old. Let’s take a look at retirement as the start of a new phase in life.

These days, retirement can last 30 years or longer. It’s time to rethink our approach to generating income during those years.

Back when the average retirement was significantly shorter, the traditional approach of gradually shifting your portfolio from equities to fixed income and cash equivalents the nearer you got to retirement worked. It served to mitigate investment risk at a critical juncture where you would no longer have enough working years remaining to recover from a significant market downturn.

Transitioning from saving to spending

Before you transition into retirement, it’s important to have a firm understanding of your guaranteed income sources (think Social Security, pensions, and annuities) and your non-guaranteed income sources such as tax-deferred retirement savings, taxable accounts, and CDs.Disclosure 2 You’ll also want to estimate how much income you’ll need to cover essential needs like food, shelter, and healthcare, as well as other “wants and wishes”—like travel, charitable gifts, and a legacy for your heirs.

Ideally, you may want to align guaranteed income sources to all of your needs and some of your wants, allowing your portfolio assets to be invested less for short-term income and more toward long-term growth. Similarly, you can afford to be more invested for growth with assets that won’t be needed for another 15 to 20 years than those assets that need to generate income over the first few years of retirement.

Your Premier Banker can be an invaluable partner, working with you prior to or early on in your retirement to more clearly define and quantify your retirement and legacy goals. Together, you can earmark income sources and appropriately structure your investments to give you the opportunity to achieve your goals with an appropriate level of investment risk. Financial planning and support with a Premier Banker require assets of $250,000 or more.

Financial planning and support with a Premier Banker require assets of $250,000 or more.

Strategies for aligning income to goals

At Truist, we believe an optimal income strategy is built around three core principles—bucketing, total return, and dynamic distribution—with the right approach or mix of approaches determined by your particular needs, preferences, and circumstances.

Bucketing: A bucket strategy segments your retirement assets by a certain category. The two most common bucketing approaches are goals-based (aligning specific income sources to your needs, wants, and wishes) and time/risk-based (where assets intended to provide short-term income are invested conservatively, while assets earmarked for income years down the road may be invested more aggressively).

Total return approach: In a low-interest-rate environment, it can be exceedingly difficult to generate enough income to sustain your lifestyle from a purely income-oriented portfolio’s interest and dividends. A total return approach looks to incorporate both yield and price appreciation, given a particular level of risk, in an effort to maintain better portfolio diversification, enhance tax efficiency, and increase income longevity.

Dynamic distribution: Unlike a traditional systematic withdrawal approach, which distributes a fixed dollar amount or fixed percentage from your portfolio each year, dynamic distribution is a withdrawal strategy that looks to maximize both return and compounding by distributing more income when market returns are high, and less income when returns are lower.

In addition to market risk and longevity risk, new retirees need to factor in inflation risk (especially the escalating costs of healthcare) and the risk of withdrawing too much too soon. Another important factor is something called sequence of returns risk, which teaches us that negative market returns during the first few critical years of retirement can have a harmful impact on the ability of portfolios to generate income that will last a lifetime.

This is why you’ll want to sit down with an advisor to develop a thoughtful income strategy that will not only endure, but be flexible enough to adapt as your needs and circumstances evolve. By working together, you’ll be better able to craft a retirement income solution that addresses your needs today while providing greater confidence in your plan for years to come.

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We think your money should create opportunities for you. To help you live a purposeful life. With assets of $250,000 or more, you’ll get personal advice and a plan to help empower your financial future.Disclosure 1

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Disclosure 1 Clients with Truist deposits and investments totaling $100,000 or more will have access to select benefits and privileges associated with our Premier Banking program. Consultative support and financial planning with a Premier Banker require $250,000 in assets. To learn more about Premier Banking benefits, click here.

Disclosure 2 All guarantees are subject to the claims-paying ability of the issuing insurance company.

This content does not constitute legal, tax, accounting, financial, or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial, or investment professionals based on your specific circumstances. We do not make any warranties as to the accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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