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The 4% rule has long provided retirees with guidance on how to maintain a safe withdrawal rate from retirement accounts. But with today’s low bond yields and stock market volatility, this once-stable rule of thumb seems increasingly open to change. One approach outlined by John Hancock Investment Management suggests using diversified, multi-asset income portfolios. The idea is to provide more sustainable and ample income streams while better protecting savings in volatile markets.
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What are multi-asset income portfolios?
Multi-asset income portfolios combine a variety of assets with the goal of generating stable cash flows. They typically contain a range of bonds, including government bonds, investment-grade corporate and high-yield issues. They may also contain dividend-paying stocks, real estate investment trusts (REITs), master limited partnerships (MLPs) and alternative income sources, such as private equity and infrastructure securities.
Diversification across multiple sources of income is the hallmark of multi-asset strategies. This aims to deliver higher returns to investors while controlling the risk of overexposure to a single asset class or market sector. Portfolios combine higher-risk, higher-yielding securities with lower-risk securities to balance the pursuit of returns and risk management.
Multi-asset income strategies offer today’s average investors, savers and retirees the opportunity to develop greater resilience to market downturns, compared to simply relying on the 4% rule over the long term. This rule of thumb suggests withdrawing 4% of retirement savings in the first year of retirement and increasing the withdrawal amount each year in line with inflation.
With long-term bond yields still low compared to historical norms, a traditional 60/40 stock/bond portfolio may not produce enough returns overall to support a 4% withdrawal rate. Stock market volatility also adds uncertainty to the idea that 4% will be a safe withdrawal rate for decades after retirement.
In contrast, multi-asset income portfolios have delivered steadier payouts and lower volatility during three recent market downturns, according to the John Hancock report. These include the 2008 financial crisis, the pandemic-driven sell-off of 2020 and the 2022 stock and bond correction. Investors in these portfolios enjoyed average annual payouts slightly higher than 4% during most of this turbulence, according to an analysis from Manulife Investment Management cited in the report.
Who is this approach suitable for?
Multi-asset income investing isn’t necessarily right for everyone in retirement. The broad mix of assets across stocks, bonds and alternatives increases the cost and complexity of the portfolio compared to holding an index fund alone. It also requires active management of asset allocation, as market risks change over time. And returns will fluctuate, so income can’t be guaranteed the way a bond’s coupons promise a fixed rate.
But for retirees looking for sustainable cash flow to support their lifestyle, multi-asset income strategies are worth considering. For those uncomfortable relying solely on dividend stocks or high-yield bonds to fund their retirement, multi-asset diversity spreads the risk. These portfolios have delivered steady payouts for years, with likely lower volatility levels than stocks, according to data from Manulife Investment Management cited earlier. Consider talking to a financial advisor about your investment options and what might be right for your goals.
An individual investor’s income needs, withdrawal requirements and risk tolerance will all determine whether a multi-asset income portfolio is a good choice. While past performance is no guarantee of future results, the record of resilience during recent stock and bond storms suggests that multi-asset funds could be a viable option for many.
Limitations and risks of multi-asset income portfolios
While multi-asset income portfolios mitigate risk better than relying on the 4% rule, limitations remain. Income is not guaranteed from year to year, and future returns may lag historical averages. In addition, the variety of securities involved leads to higher management costs than simple index funds, as investors pay for active oversight of these more complex strategies.
Finding the right mix of assets that align with your income goals and risk tolerance takes guidance. No one-size-fits-all portfolio allocation will meet every investor’s needs, so you may want to consult a financial advisor. And shifting some holdings, such as private equity or real estate, into income-producing assets can take time and incur transaction costs.
Tips for your retirement
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If you have questions about how to allocate your money during retirement, a financial advisor can help. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can schedule a free introductory meeting with your advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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