Building Your Retirement Income Pyramid

May 6th, 2019 by Jim Allen

One of the biggest concerns we hear from clients that are thinking about the transition to retirement is “How am I going to replace my paycheck? “ This is a major point of stress for pre-retirees and retirees and there isn’t always a clear cut solution. In some ways, creating retirement income is like a giant jigsaw puzzle where all the pieces look the same. You can put together the puzzle in a variety of ways and end up with the same outcome, or it can end up being a mess. But, unlike a puzzle where you can start over if it isn’t coming together the right way, there usually aren’t “do overs” in retirement. So, this means being really intentional about building your retirement income plan.

One approach we use towards creating that plan is to build your “Retirement Income Pyramid.” This starts with building a base of guaranteed or reliable income and then adding on additional layers or income sources to create the optimal income scenario. Ideally, the less reliable (or riskier) income sources are used last at the top of the pyramid to fill in the income that the more reliable sources can’t provide.

Here is an example of a retirement income pyramid:

Capital Gains
Interest & Dividends
Rental or royalty income
Wages from part-time work
Guaranteed Retirement Income


Guaranteed retirement income provides the foundation or base of the income pyramid and includes Social Security, pensions, and life time annuities. Human capital (or working) can provide a solid, reliable next layer of income and retirees can work in a variety of ways including consulting, encore careers, working part time or starting a business.

The next layers are sometimes called “mail box money” as investments in stocks, bonds real estate and bank products can provide steady (but usually not guaranteed) streams of income. These income sources include dividends from stocks, interest from bonds or bank products, and rental income from real estate holdings.

The final layer or top of the pyramid is comprised of capital gains from selling assets. In most cases there is the possibility of selling at a loss as well as a gain, so these transactions typically carry market risk. Ideally, we have built a solid foundation using the more reliable sources of income and just use capital gains to fill in the last income gaps.

Your individual situation is going to dictate what your retirement income pyramid will look like. At Anchor Bay Capital, our role as your financial advisor is to help build the sturdiest income pyramid we can, taking into account your level of risk tolerance and your retirement spending needs. Our highly experienced team of financial planning and investment experts are here to help you build a personalized retirement income plan.