Selecting a Personalized Retirement Income Strategy

Abstract

The objective of this paper is to develop a richer, more comprehensive process for measuring individual preferences that is better suited to the complexities of retirement income planning. The alternative we define is the Retirement Income Style Awareness® (RISA®) profile that is based on six factors that identify distinct retiree preferences: probability-based versus safety-first, optionality versus commitment, time-based versus perpetuity income floors, accumulation versus distribution, front-loading versus back-loading retirement income, and true versus technical liquidity. Our results identify probability-based versus safety first and optionality versus commitment as the two main factors to structure a matrix with four quadrants that delineate four retirement income approaches. We further use the other secondary factors to strengthen the case for matching retirement income strategies for individuals falling within each of these four quadrants. This investigation creates a workable model for retirement income planning by showing how the factors connect to four main retirement income strategies: systematic withdrawals with total return investing, risk wrap with deferred annuities, protected income with immediate annuities, and time segmentation or bucketing. Approaching retirement income agnostically and matching retirement income strategies based on an individual’s personal retirement income style may lead to improved outcomes that achieve greater buy-in and comfort from clients.

Keywords: retirement income, retirement security, retiree preferences

JEL Classification: G10, G11