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Goal of Retirement Income: Probability or Safety?

When you’re in the accumulation phase of your life, the goal of investing and saving is pretty clear: accumulate enough wealth to meet intermediate goals (like buying a house and paying for college) and long term goals (retirement). But what’s the investing goal once you retire? You’re not likely saving for intermediate goals anymore and your’re not saving for retirement because you’re in it.

Retirement income researchers like Wade Pfau suggest there are two options:

  1. You’e either trying not to outlive your money via a probability investing strategy using a form diversification, or
  2. You’re seeking safety to make sure you don’t outlive your money using products like like annuities or a reverse mortgage.

Or you could follow a combination of these two approaches.

The approach that is right for you is determined by the type of assets you have (Social Security, pensions, annuity, investments), spending behaviors, health, life expectancy, how much you want to leave as a legacy and mindset or fear factor. Creating an investment goal in retirement is not as simple as when you were accumulating wealth is it?