Building a Secure Retirement, 10 Years at a Time.

In an earlier article, I described my unexpected decision to use fixed-term immediate annuities (FTIA) to form a floor for my expenses over the next ten years. I thought you might find it of interest if I expand on this, relating to the balance of our income needs and how this might play out over the longer term. To be clear and upfront this strategy is “Prioritizing Income Generation Over Capital Preservation” but not in a reckless way and could change over each 10 year block. My modelling suggests a 40 year time frame with average returns would be achievable at our inflation adjusted spending levels and still leave portfolio legacy considerations.

My FTIA provides an initial 65% of our needs, declining as a percentage as inflation takes its toll over the time frame. The inflation adjusted 35% top up to this (to include inflation adjusting the original 65% FTIA) is going to come from a combination of after tax cash and pre-tax short term bonds to manage tax band issues. Equity holdings may also be used if they exceed my spreadsheet performance projections of 2% real returns. This in my mind is a form of liability matching in so far as I’m matching low volatility assets to future consumption needs over a ten year time frame. I see no need to deviate from this basic liability matching strategy over the following ten year block. I realise not everyone may have the resources to do so.

The details may be different; it’s unknowable at present if FTIAs or other short term products will offer value, but it will definitely be something I research closer to the time. By the time the second ten year block is implemented, social security for both of us and a small defined benefit (DB) pension Suzie has will have kicked in to provide a large percentage of our floor income. This aligns with my base premise that extreme long term planning is useful but paradoxically useless at the same time. While the broad brush stroke of a plan is required, the granular more short-term detailing needs a different strategy to be implemented closer to the time and offers a better likelihood for success.

My journey into fixed-term annuities and a tiered income strategy illustrates, in my opinion, a powerful blend of security and agility. By establishing ourselves a guaranteed floor for essential expenses Suzie and I mitigate immediate market risks, while our flexible top-up and equity component allow for both inflation adjustment and upside participation. This iterative, 10-year block approach isn’t about perfect foresight but about intelligent adaptation. It does commit us to proactive planning, combined with a readiness to research and adjust to future realities which might become bothersome as we age. But I think it offers a robust path to sustained financial well-being in our retirement without pinning the flag to any one overarching strategy.

As I stated in the original article, personal finance is indeed personal and everyone’s circumstances are unique. We should all endeavor to formulate a strong, flexible plan, including emergency liquidity, to give us the best chance in an uncertain economic world. My plan is flexible, letting Suzie and myself change direction if required, which gives us peace of mind. It’s also partially driven by a recognition of Suzie’s much more conservative risk outlook compared to mine. A financial compromise as such, that is like so much in a successful marriage, mindful of the needs of each other. A humble human plan for us.