Protecting Income
Written on August 26, 2017
SAM OGRIZOVICH, CFP®

Protecting Income


It can be particularly troubling to experience a stock market decline while income is being withdrawn from an investment portfolio. Those of you who are retired (fully or partially), or contemplating a retirement, realize the potential stress of pulling money out of assets when stocks are heading south.

That income, however, should be protected. If the total portfolio is built with diversified, non-correlated assets, the non-stocks portion is designed to hold up well when stocks don’t. Those assets (e.g. bonds, multi-asset strategies) provide income when stocks fall.

For example, let’s look at a balanced portfolio blend of 25% bonds, 50% stocks, and 25% multi-asset, or alternative strategies. Let’s further assume a 4% withdrawal rate. In a falling stock market scenario, the possible income from that half (i.e. stocks) of the portfolio could be stopped as half (i.e. 2%) the income could be withdrawn from bonds and the other half (2%) from multi-asset funds.

This withdrawal strategy could leave a stock allocation untouched during a decline for over a decade as long as the withdrawal rate (4% in this example) provides enough income. As a result, stocks need not be sold at lower prices and, in the future, could be sold upon recovery and provide income at that time.

Nice, huh? This is the strategy that we routinely use for clients who withdraw income. Challenges result when withdrawal rates are so high that the income from bonds and multi-asset funds is not sustainable.

Who knows when the next stock market decline will strike. There should be comfort, however, with the realization that a portfolio of non-correlated assets is structured to weather the storm.


All information is believed to be from reliable sources however we make no representation as to its completeness or accuracy.  All economic and performance information is historical and not indicative of future results. Any market indices mentioned are unmanaged and cannot be invested in directly.  Additional information, including management fees and expenses, is provided on our Form ADV Part 2. All investments involve risk and past performance is not a guarantee of future results.