People often assume that managing money for income is simply a matter of selling investments as needed from a diversified portfolio.  After all how hard can it be to spend money?  But it's not as easy as it sounds---especially when financial resources are tight.  Most people will need to maximize current income without depleting the portfolio too quickly.  It's a tricky balance.  And there is more to it than just being careful to spend the right amount.  The withdrawal strategy can make a big difference too.  Systematic Withdrawals is the common approach whereby an investor systematically sells investments as needed for income.  But this isn't really a "strategy".  It's just the default situation that exists when one does not have a well-designed income withdrawal plan.

The problem with a Systematic Withdrawals approach is that the investor has so little protection during down markets and may be forced to sell hard-earned investments at bargain-basement prices.  Financial markets are a lot like the weather---there are nice days and there are stormy days.  But unlike the weather, financial storms can last for years.  We need to be prepared.  We need to expect and anticipate that many years may go by while the best thing to do is hunker down and avoid selling assets at depressed prices.  But investing only in safe stable investments can be equally risky over the long-haul as inflation nibbles away the value.

This topic would only be mildly important if most people still had pensions and investment income was a bonus.  But more and more retirees are going to be dependent on investment income.  It's not extra---it's survival.  We call it the "401(k) Experiment" because it's not yet clear how it will turn out.  Saving for retirement is hard enough, and most people have not accumulated a surplus---making it all the more important for the spending phase to go well.  So here's the big question:  How do we maintain steady and dependable income while investing in financial markets that can be anything but steady and dependable?

The answer is to use a Defined Withdrawals Strategy.  Defined Withdrawals is a simple but powerful income withdrawal and investment allocation technique that balances the competing needs of dependable income and long-term growth.  The premise is simple:  One portion of the portfolio is invested in highly certain income-producing investments.  The other portion is invested in stocks for long-term growth.  It is the income certainty of the first portion that allows an investor to manage the second portion with a cool head.  When an investor needs both dependable income and growth (likely to fund long-term income), then the plan should address both needs.  If it seems like common sense, it is!  Stock investments will occasionally be sold to replenish the highly certain income-producing investments.  However rather than systematically selling stocks according to a regular schedule, the investor strives to sell stocks at favorable times using plan benchmarks and stock trend-lines as a guide.  Stock dividends, which tend to offer a medium level of income certainty, will often be part of the withdrawal strategy too---especially when interest rates are low.

We realize that when it comes to investment strategies there are a lot of bold claims out there, and it can be difficult to know what to believe.  So we created a Free Investment Income Simulator that lets you practice managing investments for income.  Find out for yourself what works and what doesn't.  It has the added advantage of being fun!  It can be played like a game.  Test your skills and see if you can reliably withdraw your desired income for up to 30 years without running out.  Compare your results to what would have happened with a Systematic Withdrawals plan.  It may take a little practice, but after you get the hang of it, you will find that a Defined Withdrawals strategy consistently outperforms and outlasts the Systematic Withdrawals benchmark.  The free Nightmare on Wall Street presentation teaches some tricks for managing a Defined Withdrawals plan when times get tough, and we recommend viewing this presentation before using the Investment Income Simulator.

The Defined Withdrawals strategy itself is not complicated, but real-life income plans and personal financial situations can be.  A powerful tool is needed to develop and optimize a comprehensive Defined Withdrawals plan for the real world.  That tool is the Income Strategy Generator or ISG™ software, which we offer in cooperation with Brentmark Software, a leading provider of financial planning tools.  The ISG™ software will help you optimize the allocation of capital for the desired income while accounting for many other factors such as non-investment sources of income and variable income needs.  It is not a simulation tool but rather a planning and asset allocation tool for optimizing investment and retirement income.

Most asset allocation software uses a variation of Modern Portfolio Theory as the basis for the allocation.  This is a perfectly reasonable approach when investing for growth alone.  But the investment allocations that result from Modern Portfolio Theory are not designed for regular withdrawals.  When steady and dependable investment income becomes a primary need, then the investment allocation should address this need head-on and strike a balance between income-certain investments, dividends, and long-term growth investments.  The ISG™ software uses a novel, but common-sense, approach for achieving this balance.  Download our free book, No Hype Investing for Income with the Income Strategy Generator, for a more complete explanation.

Finally We are often asked whether the ISG™ software is a professional or personal product.  It is designed first and foremost for professional planners.  However many individuals will have no trouble following the examples in our Free Book and using the software to develop their own plans.  Of course we still always recommend seeking professional assistance before making final decisions---from an advisor who specializes in developing Defined Withdrawals plans!

Good grief we changed the name of the software and the book again!  For a variety of reasons we've gone back to the classic ISG™ name...sort of like the New Coke fiasco!  The Retirement Income Navigator™ is now called the Income Strategy Generator™.  And the book that was called Mastering the Journey with the Retirement Income Navigator™ is now called No Hype Investing for Income with the Income Strategy Generator™.  Hopefully this is our last name change.  But unlike New Coke, we never changed the formula, the methodology is still the same!