How to Build a Retirement Income Portfolio

Most people spend their entire working life building a portfolio value.

Small cap.
Large cap.
International.
Growth.
Value.

That’s Chapter One.

But Chapter Two is different. Chapter Two is about you.

Chapter Two is about income.

So when people ask me how to build a retirement income portfolio, my answer usually surprises them. It’s not about percentages. It’s not about market growth. And it’s definitely not about chasing returns.

Stop Thinking Like an Investor

Let me be clear right out of the gate.

Annuities should never, ever, ever be purchased for market growth. Not for upside. Not for potential. Not for dreams.

If it sounds too good to be true, it is. Every single time.

Annuities are contracts. They are contracts between you and a life insurance company. You don’t own them for what they might do. You own them for what they will do.

That distinction matters when you’re building an income portfolio.

You Already Own Annuities

Here’s the part that usually gets people to stop arguing.

You already own annuities.

The first one is Social Security. It’s the best annuity on the planet. It pays you for life, and it adjusts for inflation. The adjustments happen for political reasons, not actuarial ones, but it’s still an annuity.

The second annuity you might own is a pension. If you’re lucky enough to have one, it pays you for life as long as you’re breathing. That’s the definition of an annuity.

And the third annuity you own is one people don’t like hearing about.

Your IRA or 401k.

Required Minimum Distributions force you to take money out every year based on your age and life expectancy, as long as you’re breathing. That’s income for life, whether you like it or not.

Sounds like an annuity to me.

What an Income Portfolio Actually Is

A retirement income portfolio is simple.

It’s not small cap versus large cap.
It’s not percentages.

It’s one question.

How much money needs to hit your bank account every month so that you — and more importantly your spouse — are comfortable?

That income can come from a lot of places:

Social Security
Pension income
Required Minimum Distributions
Dividends
Rental income

Anything that reliably shows up in your account counts.

That’s your income floor.

Filling the Income Gap

Once you add up all those income sources, there’s usually a gap.

That’s where annuities come in.

There are four annuity types that provide lifetime income for as long as you’re breathing. They’re priced primarily on life expectancy, not interest rates. Interest rates matter, but only about 20 to 25 percent of the pricing.

Life expectancy drives the train.

How Lifetime Income Is Really Priced

Banks stare straight at the Federal Reserve.

Life insurance companies don’t.

They look at your age and your life expectancy. They fill age tranches. When they need people in your age range, they raise contractual guarantees to attract you. Once the tranche is filled, they lower them.

That’s why income quotes change constantly. They’re like a gallon of milk. They expire unless you lock them in.

It’s also why shopping all carriers matters.

Commodity Products, Not Magic Products

Annuities are commodity products.

There is no “best” annuity. There is only the highest contractual guarantee at that moment for your specific age and situation.

That’s why we represent all carriers and only work with companies rated A-plus or better.

Bringing It All Together

When you’re building a retirement income portfolio, you:

Identify your income floor
Add up guaranteed income sources
Identify the gap
Use annuities only to fill that gap
Focus on contractual guarantees, not projections

Chapter Two is not about the market.

Chapter Two is about certainty.

My Bottom Line

A retirement income portfolio is not an investment portfolio.

It’s an income strategy.

If you focus on what the money will do, when it will pay, and how long it will last, you’ll stop worrying about markets and start focusing on living your life.

That’s what Chapter Two is all about.