Retirement Income and the Traditional Portfolio

The challenge with taking withdrawals from a traditional portfolio is the “sequence of returns” danger. Experiencing negative returns early in retirement can potentially undermine the sustainability of your assets. So you may want to consider a couple of strategies to help mitigate this concern.
The first is to have a pool of very liquid assets to fund two-to-three years of retirement spending; this may keep you from selling longer-term assets at an inopportune time. Through time, and depending upon market conditions, you may have the opportunity to replenish this cash reserve using gains from your retirement portfolio.
Another complementary strategy is to integrate annuities into your retirement strategy.

Taxed As Ordinary Income

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxes as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
Until now, portfolio optimization has largely focused on the blending of different asset classes in the appropriate measure to create optimal portfolios. What is often overlooked is how to integrate different retirement investment vehicles to enhance asset optimization.
One of the industry’s leading thinkers, Ibottson Associates, has done a great deal of research around this very idea.

Retirement-Income Challenge

In a landmark study, “Retirement Portfolio and Variable Annuity with Guaranteed Minimum Withdrawal Benefit,” Ibottson’s research came to several key conclusions that hold important ramifications for meeting the retirement-income challenge.
One of the study’s conclusions was the addition of variable annuity with a guaranteed minimum withdrawal benefits to retirement portfolios—replacing cash or fixed-income allocations—increases total income while it decreases income risk.”¹
A successful retirement is so much more than undertaking sound investment strategies.
It’s also about developing an approach to help protecting you, your spouse, and your heirs. Consider the benefits of extended medical insurance and Medigap insurance. Review your estate strategy to ensure that it reflects your wishes and is positioned to execute on them.
Finally, stay active—physically and mentally—so that you can fully enjoy your
retirement years.

Resource: http://www.authenticcounsel.com/resource-center/retirement/retirement-income-and-the-traditional-portfolio