Are you using the "Swiss Army Knife Approach" for your investments?

The most effective asset class to provide predictable income during your lifetime is income annuities.  That’s even more true today than in the past with such low interest rates and longer life expectancies. Yet we feel they’re often misunderstood and underutilized.

 Usual Approach to Investing ("Swiss Army Knife Approach")

Financial advisors usually recommend an asset allocation based upon their client’s age and risk propensity.  When you get to retirement, a typical recommendation would be a 60% equity and 40% fixed income allocation. That pool of assets with that allocation is supposed to support everything you want to do: provide income, make gifts, grow your wealth, special events, and leaving a legacy.

We consider this the “swiss army knife approach” to investing for retirement.  The swiss army knife has several tools on it in addition to the knife.  For example, it has a screwdriver which is very convenient if you need to tighten a loose screw.  But if you had to screw in 20 screws, you’d much rather have a full sized or even a power screwdriver that is specifically designed for that task.

We don’t think assets should be invested the same way to get the cash flow to support your lifestyle as they would to leave money for legacy purposes.  Why use one approach to support everything?  Wouldn’t you want to use assets that are best for producing predictable income, regardless of the economic environment, to support your regular lifestyle needs?  And, maybe you’d want assets with more long-term growth potential to support your legacy goals.

Also, one asset class that doesn’t show up on your balance sheet is emotional or psychological assets.   For example there’s real value in going to sleep every night knowing that, no matter what happens, you’ll always have enough money to support your lifestyle, no matter how much money that requires.  In fact, a recent study showed that people who have recurring income live happier, healthier lives.*

People have traditionally tried to cover their fixed income needs with interest from a bond portfolio. But today, interest rates are so low that it becomes impractical to try to solve your income needs with bonds. So, if social security doesn’t cover your basic expense levels and you don’t have a defined benefit pension plan large enough to cover the difference, the only place you can buy a lifetime income stream is to buy an annuity from an insurance company. 


To find out why insurance companies are able to guarantee you an income stream when your other investments cannot, click here to visit our page on The Law of Large Numbers


To find out why annuities are such an effective option for guaranteeing your income, go to our Why Annuities page.