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If you have worked with an investment advisor at a bank, a brokerage or an independent firm, you’ve certainly discussed savings, growth and strategic asset allocation. That advice has gotten you where you are. Most investment advice is fine for saving, but wrong when investing for retirement income.

During the time that you saved and invested to grow your retirement accounts, your focus was on strong net returns. As long as there’s no plan to sell the investments or withdraw money, the level of volatility rarely matters beyond managing emotional stress. In fact, when you are regularly depositing cash and buying investments, market fluctuations can help bring down your average cost. Many advisors will either recommend a balanced fund or a portfolio fund. They have built-in rebalancing to control risk and automatically buy low and sell high.

Investing for retirement income, returns are still important. At the same time, other characteristics of your investments take on a greater importance: asset allocation, volatility, rebalancing, strain and flexibility.

Asset Allocation

Asset allocation refers to the percentage of your investment portfolio that is invested in stocks versus bonds. The asset allocation always matters, but especially during retirement. The percentage in bonds represents a relatively safe investment that produces current income. The percentage in stocks represents an investment focused on growth and subject to market fluctuations. If a person were to invest solely in bonds, they would need a larger portfolio to produce the retirement income they need, and they would have a harder time keeping up with inflation. A person who invested only in stocks would be subject to greater market swings and a higher probability of running out of money, if the market crashes while they are taking withdrawals. Further, bonds typically zig while stocks zag, which creates and opportunity to rebalance, selling high and buying low.

Market Volatility

When drawing retirement income from investments, your portfolio will be less resistant to market volatility. First, selling shares or units of investment funds when the market is down could realize a loss. This is known as sequence of return risk. And remember the benefits of dollar cost averaging? When the market is fluctuating, you can lower your average cost by buying in regular instalments. That could work against you when drawing out income in regular instalments, if you’re selling investments. Using either a low volatility investment strategy or a rebalancing strategy addresses improves stability when investing for retirement income.

Portfolio Rebalancing

When was the last time your advisor recommended rebalancing your investments? If you own a balance fund, it is rebalanced by the professional manager. The manager will usually take profits and use them to purchase more of a cheaper investment. This brings the fund back to its target, typically 60% stocks and 40% bonds. If you have a customized portfolio of funds or stocks, you and your advisor need to rebalance it regularly to control the volatility and take advantage of market opportunities.

The Bucket Approach

Some people like to use a “bucket approach”. That means they’ll put the amount money to spend during the next one, three or five years (depending on the level of safety they desire) into a safe investment like GICs or short bonds. This money isn’t subject to market corrections, and they use it to fund their monthly spending. When their growth-focused investments make gains, they can take the profit to replenish the safe investments. Emotionally, this makes a lot of sense, and it makes it easier to stick with the plan. Financially, it doesn’t work as well because it misses out on rebalancing opportunities. As long as you have a rebalancing program, the bucket approach increases your feeling of security in retirement.

Income Investment Strategy

Before retirement, your investments only had one job: to grow. Once you start drawing retirement income, your investments need to be stable, to produce income and to keep up with inflation. To align your investments with all three goals, it’s important to consider your investment strategy. I recommend choosing a strategy that focuses on more stable, well-established companies that pay a dividend. Or create a portfolio that pairs a stable investment fund with an income-producing fund and a growth fund. Whichever approach you use, it will reduce the strain on your investments as you draw income. You will reduce the need to sell units or shares, especially when the market experiences a correction.


The final consideration when investing for retirement investment is flexibility. Life is uncertain, and you can imagine how locking in all of your money would be unwise. A pension or annuity has this drawback, so I generally recommend it only for a portion of your retirement income. GICs can also be inflexible. Investors can use a ladder approach to improve the flexibility of GICs or bonds. Investment funds are more flexible, especially if they are purchased without a sales charge. It won’t make or break your retirement, but flexibility is valuable and shouldn’t be ignored.

Using these ideas, you can adjust your investment strategy to support your retirement income. With less exposure to market fluctuations and a greater focus on income production in your portfolio, you will give your investments the greatest probability of lasting as long as you need them.

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