Do You Know Your RISA®? Retirement Income Style Awareness 

It’s a well-known fact that people come in all shapes, sizes, and dispositions. Take a close look around at any family reunion and you’ll see it: the crazy aunt who drives too fast and laughs all the time; the bespectacled cousin who always looks like he’s adding a column of numbers, even when he’s talking to you; the grandfather who thinks the sky is always falling; the middle-aged mom who seems to not have a care in the world. And the list goes on.  

It turns out that, just as people have widely different lifestyle personalities, they also have individualized personalities when it comes to money, investing, and retirement. Recently, financial analysts and researchers Alex Murguía Ph.D. and Wade Pfau Ph.D. conducted a series of surveys designed to analyze the principal ways that retirees prefer to generate income during retirement. From their results, they developed a framework based on two sets of characteristics that encompass the retirement income preferences of most investors. These factors are 1) Safety-First vs.  Probability Based, and 2) Commitment-Oriented vs.  Optionality-Oriented. Placed on a grid with X and Y axes, the framework looks like the chart below. 

SOURCE: RISA, LLC; used by permission 

Clients answer a series of questions, much like a personality assessment, but for finance and retirement income, and through RISA, a client’s retirement style can be identified. Leveraging RISA with clients and the information it provides, allows us to present strategies that better align with the client’s financial personality sooner than later. Personalities in relationships take time to gain familiarity. For instance, living through volatile markets and client response to those is a sub-optimal way to learn when a client may not be completely comfortable with a particular portfolio. Generating income that aligns with a client’s style ultimately increases their confidence and certainty throughout their entire path to and through retirement. Since there are often multiple approaches to achieving an optimal path for retirement income, utilizing RISA put us in a position to create a more personalized path for our clients. 

“Safety-First,” as the name implies, indicates preferences for income sources with contractual or other guarantees and less exposure to market risk, even if this means relinquishing upside potential. Building a floor of the guaranteed income usually appeals to a Safety-First client.  

“Probability-Based,” at the other end of the axis, means a client is comfortable with certain levels of market risk to generate income to meet their expenses during retirement and will adjust accordingly.  

The other set of factors that influence where a client lands in the RISA Matrix is “Commitment-Oriented” vs. Optionality-Oriented.  

Commitment-Oriented individuals are comfortable committing to a solution to not have to think about it in the future and are willing to accept income from such sources as income annuities or other contractually bound sources. “Optionality-Oriented” persons, on the other hand, prefer retirement income sources that allow them to maintain flexibility in response to changing economic or financial conditions.  

The Four Quadrants 

As the framework suggests, individuals’ preferences fall within one of the four quadrants outlined by the vertical and horizontal axes. When the various combinations are taken into account, the grid looks something like this: 

SOURCE: RISA, LLC; used by permission

Those who find themselves in the upper-left quadrant, “Safety-First/Optionality,” will tend to prefer income streams derived from investments with contractual or other guarantees (annuities, US Treasury securities, bank certificates of deposit, and others) but also want the ability to make some changes in response to certain situations. Thus, they may appreciate a “bucket” approach, with assets divided into short-, medium-, and long-term categories to allow for potential future adjustments and also better diversification along the yield curve.

Those in the upper-right quadrant favor a diversified portfolio of stocks and bonds holding more risk-based assets.  Investors that land in the bottom-right quadrant, represent a committed probability income approach. This is the combination of risky assets such as stock and bonds and contractual products that provide “guardrails”, market downside protection, which will limit how much “upside” can be gained.  Finally, those in the bottom-left quadrant typically prefer assets that offer strong protection of income and lifetime guarantees, with little intention for re-evaluation or adjustment in the future.  

Professional, fiduciary advisors can utilize RISA® results to help prospective and current retirees understand their “retirement income personality” and structure their investment strategies to accommodate individual preferences. Naturally, this revolves around developing a thorough knowledge of each person’s needs, priorities, and goals for retirement.  

At Griffin-Black, our sole priority is helping each client determine the best path for achieving their important financial goals. Our chief tool is our commitment to listening carefully and applying our experience, guided by the latest financial, investing, and economic research. To learn more, read our recent article, “Waiting Out the Bear: Market Roundup.” 

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