Risk Management

We think the smartest way to manage risks in financial planning is to use an income-based approach.

In today’s world, pensions are less common and some uncertainty exists around the future of Social Security for consistent monthly income.

This has resulted in individuals needing to take personal responsibility to ensure their post-career years remain financially secure in an age characterized by unprecedented longevity and inflation risks. This shift towards self-reliance has proven to be a daunting task for many nearing retirement today – one which was not faced by previous generations.

What do these risks mean to your retirement?

Longevity Risk

With advances in health and medical services, many people are living longer lives. As a result, you will need to plan for more sustainable income throughout your retirement.

Inflation Risk

As you live longer, you’ll be more exposed to rising prices. Applying even modest rates of inflation to everyday expenses over long periods of time, purchasing power can be seriously eroded.

Investment Risk

While you’re in your prime earning years, you can typically replenish savings if you incur investment losses. In retirement, that may be difficult or not possible.

Managing Risk

We believe income planning is the most effective way of managing risks to retirement.

We seek to manage investment risk by using a time segmented approach that divides assets across different segments with varying degrees of risk associated with each segment’s time horizon.

In our opinion, the greatest risk to retirement planning is the inherent uncertainty of the financial markets, which can result in investors facing something called the “sequence of returns risk.” This leaves investors’ long-term savings vulnerable to bad markets and is compounded in retirement when investors start withdrawing from a principal that is declining in value. 

When retirees start withdrawing from their principal in down markets, they aren’t leaving the same amount of saved assets invested to recoup growth when markets rebound. Thankfully, there are actions that may be taken to minimize this potential damage – such as utilizing a time segmented approach to retirement and income planning, which helps mitigate this risk.

This is the exact approach we take at Life Income to help clients effectively manage this risk. We keep the first segment of a client’s assets liquid to fund their first stage of retirement and systematically reinvest each segment into less risky assets as one segment is exhausted. We also manage the liquidity risk of your retirement as a whole and across segments to make sure you have access to your money when you need it.

In retirement, you need a source of income that will:

  • Satisfy both the active years of retirement and the years you may need more income for increasing health care costs
  • Adapt to changes and unexpected needs
  • Continue throughout your life

Work with a Financial Planner Today

Take advantage of a no-cost, no-obligation meeting where we'll learn about your income needs and broader financial goals. Don’t put off planning for your future because today’s income can be used to fund tomorrow.

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