​

As retirees transition from the accumulation phase to the income phase of life, understanding the concepts of red money and green money, as well as the Rule of 100, is essential for maintaining financial security in retirement. Yet, despite the clarity these principles offer, many retirees still violate these fundamental guidelines, putting their long-term financial health at risk.
 

In this article, we’ll explore the difference between red money (money at risk) and green money (safe money), the significance of the Rule of 100, and why laddering lifetime income annuities is a powerful strategy to help retirees design a secure and income-producing portfolio.

 

Red Money vs. Green Money: A Simple Framework for Understanding Risk in Retirement
 

• Red Money: This represents money that is at risk. Red money is invested in volatile assets like stocks, high-yield bonds, and other growth investments that have the potential for high returns but also expose you to market risk. Red money can fluctuate in value, and depending on the market, it may experience significant gains or losses.
   

• Green Money: In contrast, green money represents safe money—capital that is not exposed to market risk and is intended for preservation of principal. Green money is typically invested in low-risk assets such as bonds, fixed-income securities, cash equivalents, and guaranteed products like annuities. The goal of green money is to provide stability and reliable income without significant risk to the original capital.
   

In retirement, the balance between red money and green money is crucial. You need enough green money to ensure a steady income stream and protect your capital from the market’s ups and downs, while you can still allocate a portion of your wealth to red money for growth potential—if you have the appropriate risk tolerance and time horizon.

 

The Rule of 100: A Simple Guideline for Portfolio Allocation
 

The Rule of 100 is a straightforward rule of thumb that suggests a simple formula for determining how much of your portfolio should be allocated to green money (safe assets) versus red money (risk assets) as you approach retirement.
 

• The Rule of 100: Take your age, and subtract it from 100. The result represents the percentage of your portfolio that should be in safe money (green money), while the remaining portion can be allocated to growth assets (red money).
   

For example, if you’re 60 years old:
 

• 100 – 60 = 40% of your portfolio should be in red money (riskier assets like stocks).
   

• The remaining 60% should be in green money (safe, income-producing investments like bonds or annuities).
   

This rule is designed to gradually reduce exposure to risk as you age and enter retirement, recognizing that once you're retired, principal preservation and stable income become more critical than growth potential. It helps ensure that your portfolio is more secure and better suited to produce reliable income in your later years.

 

How Many Retirees Violate These Principles and Why It’s Dangerous
 

Despite the wisdom of the Rule of 100, many retirees violate these principles by continuing to use accumulation-phase strategies into retirement. The most common violations include:

 

1. Overexposure to Red Money (Risk Assets)
 

Many retirees, influenced by a lifetime of accumulation strategies, may still hold significant portions of their portfolios in red money. This includes continuing to invest heavily in stocks, equity-based mutual funds, or other growth investments. While these may have worked well during the accumulation phase when the goal was to grow wealth, they pose unnecessary risks in retirement.
 

• Market volatility becomes far more dangerous in retirement. If retirees are withdrawing income from a portfolio that is still exposed to significant market risk, they may be forced to sell at a loss during a market downturn, reducing the longevity of their portfolio.
   

• Sequence of returns risk can devastate a portfolio if large losses occur early in retirement. These losses can compound the impact of regular withdrawals and quickly eat into a retiree’s savings.
  
   

2. Underexposure to Green Money (Safe Assets)
 

On the flip side, some retirees may not allocate enough capital to green money. They may be reluctant to reduce their exposure to red money, believing that growth is essential for a prosperous retirement, or they may fear missing out on potential market gains. This can leave them with a portfolio that is vulnerable to market fluctuations when what they truly need is safe, predictable income.
 

Without enough green money, retirees might struggle to meet their income needs if the market experiences a downturn or if they outlive their red money.

 

Why Redesigning Your Portfolio is Critical for the Income and Preservation Phase
 

When you enter retirement, the focus shifts from growing wealth to protecting it and ensuring it can support a consistent, reliable income stream throughout your retirement years. That means you need to redesign your portfolio for the income and preservation phase of life:
 

• Preserving Capital: Red money might have been appropriate for the accumulation phase, but once you’re in retirement, your primary concern is protecting your capital. You can no longer afford to have significant portions of your portfolio exposed to risk.
   

• Stable Income: In retirement, you need to focus on creating a reliable income stream to replace your paycheck. This may mean shifting from growth assets to income-generating assets, such as fixed-income securities, dividend-paying stocks, or lifetime income annuities.
   

• Minimizing Risk: The longer your retirement, the more susceptible your portfolio is to the risk of market volatility. An important part of your retirement plan is to ensure that your money isn’t subject to unpredictable swings, especially during periods when you need to access it.
  
   

How Laddering Lifetime Income Annuities Can Help
 

One of the most effective strategies for retirees seeking safety and predictable income is laddering lifetime income annuities. A laddered annuity strategy involves purchasing multiple annuity contracts with different start dates, ensuring that you have a stream of income beginning at various intervals throughout retirement.
 

• Laddering reduces risk by providing multiple income sources at different times, thus protecting against inflation and interest rate changes.
   

• Annuities offer guaranteed income for life, regardless of market conditions. This guarantees that you won’t run out of money, even if the market experiences a downturn or your portfolio underperforms.
   

• Laddering allows for flexibility: You can create a diversified income stream by varying the amount, timing, and types of annuities in your ladder. This gives you the freedom to customize your retirement income plan according to your needs and goals.
   

By allocating a portion of your portfolio to annuity contracts, you can take advantage of green money’s safety while also ensuring that you have reliable income for the long term. This is a far safer and more predictable strategy than relying solely on growth assets in retirement.

 

Conclusion: Redesigning Your Portfolio for the Income and Preservation Phase
 

As you transition into retirement, it’s critical to redesign your portfolio in a way that reflects the new priorities of income generation and capital preservation. By balancing red money and green money appropriately—following the Rule of 100—you can minimize risk and increase the stability of your retirement income.
 

Retirees who fail to adjust their portfolios are often overexposed to market risk and vulnerable to sequence of returns risk. The key to success in retirement is to work with a qualified retirement income specialist who can help you align your portfolio with the needs of your income and preservation phase of life.
 

Laddering lifetime income annuities is one of the most effective strategies for achieving the security, stability, and peace of mind you need. It can help ensure a guaranteed income stream while freeing up more capital for long-term growth and reducing your exposure to market risk.
 

If you're unsure whether your portfolio is properly aligned with your retirement goals, consider speaking with a specialist to discuss laddering annuities and other strategies designed to secure a comfortable, worry-free retirement.