You are previewing Retirement Income Redesigned: Master Plans for Distribution: An Adviser's Guide for Funding Boomers' Best Years.
O'Reilly logo
Retirement Income Redesigned: Master Plans for Distribution: An Adviser's Guide for Funding Boomers' Best Years

Book Description

Clients nearing retirement have some significant challenges to face. And so do their advisers. They can expect to live far longer after they retire. And the problems they expect their advisers to solve are far more complex. The traditional sources of retirement income may be shriveling, but boomers don't intend to downsize their plans. Instead, they're redefining what it means to be retired—as well as what they require of financial advisers. Planners who aren't prepared will be left behind. Those who are will step up to some lucrative and challenging work.

To help get the work done, Harold Evensky and Deena Katz—both veteran problem solvers—have tapped the talents of a range of experts whose breakthrough thinking offers solutions to even the thorniest issues in retirement-income planning:

  • Sustainable withdrawals

  • Longevity risk

  • Eliminating luck as a factor in planning

  • Immediate annuities, reverse mortgages, and viatical and life settlements

  • Strategies for increasing retirement cash flow

In Retirement Income Redesigned, the most-respected names in the industry discuss these issues and a range of others.

Table of Contents

  1. Copyright
  2. Praise for: Retirement Income Redesigned
  3. Praise for: The Investment Think Tank
  4. ACKNOWLEDGMENTS
  5. ABOUT THE CONTRIBUTORS
  6. FOREWORD
  7. I. Facing the New Realities
    1. 1. Boomers: A Force for Change
      1. 1.1. Boomer Retirement: The Times Are Changin'
      2. 1.2. New Realities: Retirement Is Bad for You
      3. 1.3. A Value Shift
      4. 1.4. The Decumulation Phase in Retirement Planning
      5. 1.5. Retooling Your Practice
        1. 1.5.1. Understand What Boomers Want
        2. 1.5.2. Narrow Your Market
        3. 1.5.3. Emphasize the Investment Process, Not Products
        4. 1.5.4. Offer More Than Traditional Services
        5. 1.5.5. Become Part of the Solution
    2. 2. Maslow Meets Retirement
      1. 2.1. Income for Life
        1. 2.1.1. A Hierarchy of Financial Needs
        2. 2.1.2. Paying the Bills
      2. 2.2. Organizing the Maslow Conversation
        1. 2.2.1. Individualized Planning
        2. 2.2.2. Funding a Life
        3. 2.2.3. Getting Real
    3. 3. Decision Making at Retirement: High Stakes for the Long Haul
      1. 3.1. The Cycle of Decision Making
        1. 3.1.1. Recognition
        2. 3.1.2. Organization
        3. 3.1.3. Deliberation
        4. 3.1.4. Justification
        5. 3.1.5. Evaluation
      2. 3.2. Decision Making and Context
        1. 3.2.1. Endowment Effects in Distribution Planning
        2. 3.2.2. Framing Effects of Gains Versus Losses
        3. 3.2.3. The Problem of Evaluation
        4. 3.2.4. The Challenges of Decomposition
        5. 3.2.5. Biases in Setting Priorities and Objectives
        6. 3.2.6. Accounting for Client Change
        7. 3.2.7. Estimating Health Care Expenditures
        8. 3.2.8. Changes in Cognitions and Emotions
        9. 3.2.9. Coda
    4. 4. Reinventing Retirement
      1. 4.1. Whatever Happened to the Golden Years?
        1. 4.1.1. And What Will Happen to Retirement Planning?
      2. 4.2. Removing "Tired" from Retired
        1. 4.2.1. Living Well
        2. 4.2.2. Changing Times; Changing Plans
      3. 4.3. Financing the Rewired Life
      4. 4.4. The New Retirementality
        1. 4.4.1. Myth No. 1: Age 65 Is Old
        2. 4.4.2. Myth No. 2: Being Retired Means You No Longer Work
        3. 4.4.3. Myth No. 3: You Have to Be 62 to Do What You Really Want to Do
        4. 4.4.4. Myth No. 4: Retirement Is Exclusively an Economic Event
        5. 4.4.5. Myth No. 5: A Life of Ease Is the Ultimate Retirement Goal
        6. 4.4.6. Myth No. 6: I Can Do My Own Retirement Planning
  8. II. Assessing the Risks
    1. 5. Psychological Impediments to Retirement-Income Planning
      1. 5.1. The Risks of Retirement
      2. 5.2. Failing to Plan Effectively for Old Age
        1. 5.2.1. The Central Tendency
        2. 5.2.2. Misperceptions
      3. 5.3. Helping the Next Generation to Retire
    2. 6. Lifelong Retirement Income: How to Quantify and Eliminate Luck
      1. 6.1. A Balancing Act: Assets and Cash Flow
        1. 6.1.1. Assets
        2. 6.1.2. Cash Flow
        3. 6.1.3. Secular Trends and the Luck Factor
        4. 6.1.4. Asset Allocation
        5. 6.1.5. Asset Selection
        6. 6.1.6. Management Cost
      2. 6.2. The Successful Distribution Portfolio
      3. 6.3. Cyclical Trends
        1. 6.3.1. Reverse Dollar-Cost Averaging
        2. 6.3.2. Optimum Asset Allocation
        3. 6.3.3. Sustainable Withdrawal Rates
      4. 6.4. Asset-Allocation Strategies
      5. 6.5. Cash Flow Strategies
        1. 6.5.1. Pooled Versus Individual Distribution Portfolios
        2. 6.5.2. Average Growth Rate Versus Design Growth Rate
      6. 6.6. Ensuring Lifelong Income
        1. 6.6.1. Interpreting the Formula
    3. 7. Balancing Mortality and Modeling Risk
      1. 7.1. Shifting the Risk
        1. 7.1.1. Mortality Trends
        2. 7.1.2. The Issue of Annuities
      2. 7.2. Uncharted Territory: A Safe Withdrawal Rate
        1. 7.2.1. Modeling Mortality Probabilities
      3. 7.3. Appendix: Monte Carlo Illustrations
    4. 8. Monte Carlo Mania
      1. 8.1. Monte Carlo—Good? Bad? Good Enough?
        1. 8.1.1. Friends of Monte Carlo
      2. 8.2. The Average-Return Problem
        1. 8.2.1. The Monte Carlo Solution
      3. 8.3. The Problem With Monte Carlo
        1. 8.3.1. Problem 2: What Does the Projection Mean?
        2. 8.3.2. Problem 3: What Risk Does the Projection Hide?
      4. 8.4. Stress Testing: More Effective Than Monte Carlo
        1. 8.4.1. The Process of Planning
        2. 8.4.2. The Retirement-Lifestyle Planning Process
        3. 8.4.3. Step 1: Goals
        4. 8.4.4. Step 2: Base Plan
        5. 8.4.5. Step 3: Stress Testing
        6. 8.4.6. Step 4: Repeat Steps 2 and 3 to Create a Workable Plan
        7. 8.4.7. Step 5: Monte Carlo
    5. 9. Understanding Required Minimum Distributions
      1. 9.1. The Rules and How They Apply
        1. 9.1.1. Starting Distributions
        2. 9.1.2. How Much to Take
        3. 9.1.3. Annuity Payments
        4. 9.1.4. Surviving Spouses
        5. 9.1.5. Qualified Domestic Relations Orders
        6. 9.1.6. Tax-Sheltered Annuities
        7. 9.1.7. Vesting Restrictions
        8. 9.1.8. Multiple IRAs
        9. 9.1.9. Reporting Requirements
        10. 9.1.10. The 50 Percent Penalty
  9. III. Shaping the Solutions
    1. 10. Risk Management During Retirement
      1. 10.1. Threats to Retirement Income
        1. 10.1.1. Longevity Risk
        2. 10.1.2. Inflation Risk
      2. 10.2. Will the Money Run Out?
        1. 10.2.1. The Retirement Ruin Formula
        2. 10.2.2. The Critical Years
      3. 10.3. The Role of Downside Protection
        1. 10.3.1. A Place for Derivatives
        2. 10.3.2. Why Longevity Insurance?
      4. 10.4. The Essentials
    2. 11. Withdrawal Strategies: A Cash Flow Solution
      1. 11.1. Cash Flow Strategy: Clearing the Hurdles
        1. 11.1.1. Longevity Risk
        2. 11.1.2. Purchasing Power Risk (Inflation)
        3. 11.1.3. Volatility
        4. 11.1.4. Financial Flexibility
        5. 11.1.5. Behavioral Risk
        6. 11.1.6. Client Needs
      2. 11.2. Myths and Nonsense
        1. 11.2.1. Portfolio Design
        2. 11.2.2. Inflation
        3. 11.2.3. Monte Carlo Saves the Day
      3. 11.3. Evensky & Katz Cash Flow Reserve Strategy
        1. 11.3.1. The Strategy
        2. 11.3.2. Evaluation
        3. 11.3.3. Does It Work?
    3. 12. Asset Allocation: The Long View
      1. 12.1. The Retirement-Income Problem
        1. 12.1.1. The Time Value of Money
        2. 12.1.2. The Tax Value of Money
        3. 12.1.3. The Risk Value of Money
      2. 12.2. Managing the Risk of Equities
        1. 12.2.1. The Median and the Mean
      3. 12.3. Addressing Risk in Retirement-Income Planning
        1. 12.3.1. Optimal Equity Allocation
        2. 12.3.2. A Word to the Wise Planner
    4. 13. Sustainable Withdrawals
      1. 13.1. Outliving a Portfolio
      2. 13.2. The Maximum Safe Withdrawal Rate
        1. 13.2.1. Safemax for Other Portfolio Longevities
        2. 13.2.2. The Risks of Exceeding the Safemax
      3. 13.3. Raising Safemax Through Asset Selection
        1. 13.3.1. Safemax Versus Equity Allocation
        2. 13.3.2. Introducing Small-Company Stocks
        3. 13.3.3. Introducing Treasury Bills
        4. 13.3.4. Other Asset Classes
      4. 13.4. Raising Safemax Through Alternative Withdrawal Schemes
        1. 13.4.1. Spending More Now, Less Later
        2. 13.4.2. Performance-Based Withdrawals
      5. 13.5. Raising Safemax Through Investment Returns
      6. 13.6. Bequests
      7. 13.7. Equity Allocations During Retirement
      8. 13.8. Advising Clients on Sustainable Withdrawals
    5. 14. Tools and Pools: Strategies for Increasing Retirement Cash Flow
      1. 14.1. Conflicts and Hazards
      2. 14.2. Tools
        1. 14.2.1. Taking Income From the Portfolio
        2. 14.2.2. Consuming Capital
      3. 14.3. Managing Cash Flow
        1. 14.3.1. Pools
        2. 14.3.2. Identifying the Pools
      4. 14.4. Creating an Investment Strategy
      5. 14.5. A Trial Portfolio
    6. 15. Creating Portfolios With Lower Volatility
      1. 15.1. The Best of Both Worlds
      2. 15.2. Navigating the Pitfalls of Overvalued Markets
        1. 15.2.1. Interest Rate Direction and the Bond Market
        2. 15.2.2. An Overvalued Stock Market
        3. 15.2.3. The View From Here
      3. 15.3. Viable Alternatives
        1. 15.3.1. Uncovering Correlations
        2. 15.3.2. Exchange-Traded Funds
      4. 15.4. Designing a Lower-Volatility Portfolio
    7. 16. Reverse Mortgages in Distribution Planning
      1. 16.1. The Reverse Mortgage: A Viable Option?
        1. 16.1.1. What Is a Reverse Mortgage?
        2. 16.1.2. Types of Reverse Mortgages
        3. 16.1.3. Home Equity Conversion Mortgages
        4. 16.1.4. Fannie Mae Reverse Mortgage Products
        5. 16.1.5. Financial Freedom Products
        6. 16.1.6. Eligibility Requirements
        7. 16.1.7. Key Product Differences
        8. 16.1.8. Maximum Mortgage Amounts
        9. 16.1.9. Reverse Mortgage Costs
        10. 16.1.10. Obtaining the Loan
        11. 16.1.11. Cost-Benefit Analysis
        12. 16.1.12. Tax Issues
      2. 16.2. Checking for Fit
        1. 16.2.1. A Reverse Mortgage? Yes
        2. 16.2.2. A Reverse Mortgage? Maybe Not
        3. 16.2.3. Proceed With Care
    8. 17. Life Insurance Benefits—No Waiting
      1. 17.1. Stuff Happens
      2. 17.2. How the Market Works
      3. 17.3. Suitable for Sale
        1. 17.3.1. Term Insurance
        2. 17.3.2. Whole Life
        3. 17.3.3. Universal Life
        4. 17.3.4. Variable Life
      4. 17.4. Preventing Lapses
      5. 17.5. Facing Controversy
    9. 18. Longevity Risk Insurance
      1. 18.1. Lasting a Lifetime
      2. 18.2. Sources of Retirement Income
        1. 18.2.1. Social Security and Defined-Benefit Pension Plans
        2. 18.2.2. Defined-Contribution Plans and Personal Savings
        3. 18.2.3. A Lifetime-Payout Annuity
        4. 18.2.4. Systematic Withdrawal Versus Annuitization
      3. 18.3. Types of Payout Annuities
        1. 18.3.1. The Fixed-Payout Annuity
        2. 18.3.2. The Variable-Payout Annuity
        3. 18.3.3. Single- and Joint-Life Payout Annuities
        4. 18.3.4. Payment Period Guarantees
        5. 18.3.5. Guaranteed Payment Floors
        6. 18.3.6. Appropriate Level of Longevity Insurance
      4. 18.4. Investors' Choices
    10. 19. Immediate Annuities: Structure, Mechanics, and Value
      1. 19.1. Structure
        1. 19.1.1. Types of Annuities
        2. 19.1.2. Payout Options
        3. 19.1.3. Immediate Fixed Annuity
        4. 19.1.4. Immediate Variable Annuity
      2. 19.2. The Right Fit
        1. 19.2.1. The Role of the Financial Adviser
        2. 19.2.2. Explaining the Advantages of Immediate Annuities
      3. 19.3. Income Taxation
      4. 19.4. Comparing the Choices
      5. 19.5. Assessing Value
    11. 20. The Search for Software
      1. 20.1. The Tech-Averse Adviser
      2. 20.2. The Retirement-Distribution Challenge
        1. 20.2.1. Advising Clients
        2. 20.2.2. The Risks of Retirement
        3. 20.2.3. Methodology
        4. 20.2.4. Where to Go From Here
  10. Continuing Education Exam
  11. ABOUT BLOOMBERG