Monday, June 18, 2012

June Advisor Perspectives Column on Retirement Income Floors

My new Advisor Perspectives column is available, "Retirement Floors and Implications for Evensky's Cash-Reserve Strategy."

The motivation for this column goes back to February, when Texas Tech University held its first boot camp for the Retirement Management Analyst designation. Someone provided some discussion about building an income floor for retirement which made sense to me. It was the goals-based form of flooring. But another participant in the discussions thought that this didn't sound like flooring at all: how can flooring be provided to meet goals in cases where people don't know what their goals are anyway? As we discussed it more and more, it became clear that there are two independent ways for thinking about retirement income flooring: the goals-based approach and the investment-based approach. Depending on your background, it can be confusing when reading about flooring because these different views start from fundamentally different places.

My column tries to clarify each approach and also provide examples. I covered a lot of ground in a short amount of space. In just a short column you will see references to work by Harold Evensky and Deena Katz, Michael Kitces, Michael Zwecher, Zvi Bodie and Rachelle Taqqu, Jason Branning and M. Ray Grubbs, Richard Fullmer and Russell Investments, Stephen Huxley and J. Brent Burns, and Joseph Tomlinson. Enjoy!


One more note, now available on the Wealth Channel website is a video interview with Michael Finke about our co-authored research also with Duncan Williams. The video can't be embedded.  When I saw a note about this at home before getting to work to watch it, I misread this as the Weather Channel. I spent the train ride pondering about when and how the Weather Channel had shifted to discussions about retirement. 

For more background, he is describing this article:

Finke, M., W. D. Pfau, and D. Williams. “Spending Flexibility and Safe Withdrawal Rates.” Journal of Financial Planning. Vol. 25, No. 3 (March 2012), p. 44-51. [P] [WP]