How to Design Your Own Private Pension

"View in Wall Street from Corner of Broad...

Over the previous pages, we’ve taken an up-close look at how pension income is the central core of a retirement income plan.  The purpose of the series is to highlight the important considerations to address when crafting a plan to convert a lifetime of savings into an income stream that will fully sustain you in the years ahead.  I’d like to revisit the main points of this series before we jump into the specific proactive step.

So, here’s a snapshot of what we covered based on excerpts from the series.

Part I:  The Value of Pensions

Why is a pension such a good thing?

Guaranteed lifetime income from a pension ensures stable cash flow across all years of retirement.

A stable base of income allows more flexibility with your other assets.  With a guaranteed baseline income secured, you can focus on growth with the other assets to overcome any financial obstacle you meet in the future.

The importance of guaranteed income is further reinforced when you take into consideration the various challenges that make retirement planning difficult.  So we continued with…

Part II:  Financial Threats in Retirement

There are definite threats with a poorly crafted plan.  When planning to overcome longevity risk, market volatility, and inflation, the actions you take now must be calculated and deliberate for the following reasons…

No one knows how long each of us will live which makes it difficult if not impossible to determine appropriate spending levels.

No one wants retirement income to be subject to the whims of Wall Street.

No one has a clue what a dollar will buy in 20 or 30 years.

This is why everyone needs and should want a stream of guaranteed lifetime income.

The major benefits are knowing you’ll never run out of money, you’re not dependent on market performance, and additional assets are accessible foe emergencies or for when you realize that paycheck doesn’t accomplish what it could years ago.

The importance of planning for these threats is apparent, and traditional asset management has long been considered to be capable of meeting the challenge.  In the name of prudent decision making, a critical examination of that line of thinking is mandatory, which led us to the following post.

Part III:  Tradition Asset Management Doesn’t Work for Retirement Income Planning

I’ll never ask you to take my word for it.  In this installment several studies were offered as a reference that allowed me to conclude with this statement:

The biggest problem to this [Traditional Asset Management] approach, in my opinion, is the fact that a single strategy is applied to planning for the major financial threats we’ve talked about, namely:

Longevity Risk

Market Volatility


Your income therefore all depends on the mood of the market, and not just now but every day for the next 20 or 30 years.

If you had a choice, when would you like your retirement income to be reduced? I vote never.

I’ll repeat myself: the traditional approach to retirement income planning does not work as it has absolutely no guarantee of success.

There is a stark contrast between the methodologies, risks, and benefits of asset management, and the needs of income planning.  That requires an individual to approach each of those targets from a different angle, which led us to the solution in the next post.

Part IV:  The Pension and Annuity Answer

Again, several academic studies were provided to give you a solid base of knowledge to use in this important decision making process.  Here’s what they had to say:

These studies combined speak directly to the central point of this ‘Pension Series’ which highlights the benefits and the necessity of guaranteed income.1) Cover your basic expenses with a source of guaranteed income you can’t outlive.

Annuities allow you to do that more efficiently than any other asset class, and frees you to allocate additional assets to optimize portfolio growth over time.

2) Continued portfolio growth with a guaranteed income safety net gives you the flexibility to ride out market corrections and makes additional funds available to provide for financial emergency or inflation.

That brings us right back to the beginning where we looked at the variety of benefits you will receive after securing a source of guaranteed lifetime income.  This is primarily a stable cash flow foundation through your entire retirement, coupled with flexibility and growth in  additional assets.  It’s not only the safest route to take but also the most profitable.

Now it’s time to find the most efficient source of income for your situation.  It’s never as simple as just picking a product.  There are many factors that need to be addressed for you specifically.  This is a serious task and you deserve more than what a basic ‘product salesman’ can offer.

Are you ready for a set of guidelines to follow when designing your private pension, and get on the right path to long-term security?

Click on to the final installment to design your own private pension….