Episode summary
Michael Finke on Building Better Retirement Portfolios for Spending
Summary
Michael Finke argues that retirement investing should be redesigned once clients stop accumulating assets and start drawing them down. A standard 60/40 portfolio may still look diversified, but he says it is often built for maximizing return, not for delivering the most stable income. In retirement, the objective shifts toward reliable cash flow, so advisers should think first about income stability and how the portfolio supports spending.
He says bond portfolios are a common weak spot because they can expose clients to both interest-rate and credit risk. Rather than relying on generic bond funds, he recommends matching bond duration to retirement cash flows so the portfolio can better support a steady spending level even when rates move or credit markets weaken. He also frames retirement planning as a goal-based process: decide how much money is for legacy, how much for spending, then split the spending bucket between stable fixed expenses and more flexible discretionary spending.
Finke also stresses that spending is not flat in retirement. Many clients spend more early on, then less in their late 70s and 80s, but costs can rise again later because of long-term care. He says advisers should plan for those shifts and use tools such as insurance, Social Security timing or annuities to help clients feel confident they can spend a set amount each month no matter what markets do.
Key takeaways
- Michael Finke says advisers should stop using accumulation-style portfolios as if they solve retirement income, because retirement calls for stable cash flow rather than maximum return.
- He argues that bond allocations can fail retirees when rates rise or credit weakens, and that matching bond duration to retirement cash flows can improve spending stability.
- Finke recommends a goal-based split between legacy assets, stable spending needs and flexible discretionary spending that can be cut if markets disappoint.
- He says spending often peaks early in retirement, declines in later years, and may rise again with long-term care costs, so plans must account for changing cash needs.
- Finke says the key adviser value is giving clients confidence that they can spend a fixed monthly amount regardless of market volatility.
Notable quotes
“the portfolio in accumulation is different than the portfolio in deumulation. You have a different objective”
“You're actually trying to get the most income that you can and also the most stable income possible”
“a better strategy is to actually immunize against that credit risk and then interest rate risk by considering the duration of the bond portfolio”
“I want to take a part of the portfolio and use it to cover stable spending every year”
“Giving them the peace of mind to know that no matter what happens in the market, they're always going to be able to spend $6,000 or $8,000 a month”
How the episode opens
Are we building retirement portfolios for the life clients actually want to live? To break it all down, I'm joined by Michael Fina. Michael, welcome. — Great to be here. — So, very much looking forward to this conversation because you're here speaking at the Horizon's event about building better retirement portfolio and about spending changes in retirement specifically. So for advisers watching, what are the biggest misconceptions about retirement portfolios that you want to dispel and what what's a myth?
Well, I think the the first instinct for advisers is to use the same portfolio strategy that they did during the accumulation phase. So um a lot of advisers think, well, you know, I'm going to build a 60/40 portfolio. It's going to be well diversified.
It's going to be just fine. I'm going to throw that portfolio at all my retirement problems and it's going to solve it. But the reality is that the portfolio in accumulation is different than the portfolio in deumulation.
You have a different objective. You're not just trying to get the highest possible return for the amount of riskiness of the portfolio. You're actually trying to get the most income that you can and also the most stable income possible.
And that's where income stability becomes a important part of the conversation, an important objective to meet when you're building that retirement portfolio.
Absolutely. So why does a standard accumulation portfolio often fail once a client actually starts spending? — Well, let me give you an example of bonds. So oftentimes an adviser will use maybe a combination of mutual funds and ETFs invested in bonds as the 40% or the 50% bond allocation of the portfolio. The problem is that exposes the client to both interest rate and credit risk.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- retirement portfolio construction
- accumulation vs spending phase
- income stability and risk
- retirement cash flow matching
- managing spending volatility
Watch the episode
Watch “Michael Finke on Building Better Retirement Portfolios for Spending” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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