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Product Description
For years, financial planners have focused on helping their clients accumulate wealth for retirement. Now, as millions of those boomer clients head into retirement, there is little quality information on how to manage that wealth in retirement. Evensky and Katz, two of the nation's best-known financial planners, asked leading experts to give advisers a toolkit and roadmap to the new landscape. Included are valuable insights and practical approaches for increasing retirement cash flow, withdrawal strategies, longevity insurance, creating portfolios with low volatility, and decision making. Each of the 26 contributors offers fresh research and solutions for forecasting income needs, evaluating client needs, and communicating effectively with clients. Armed with these more effective approaches to distribution and improved methodologies for planning, financial advisers and wealth managers will be able to make their clients? golden years shine ever more brightly.
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0 of 0 people found the following review helpful:
 Best single book on distribution phase of life, 2008-09-07
Wow, I have read over 200 books about investing.....but never have I seen such a collection of valuable information about the distribution phase of investing in one book.
Twenty-five different authors contribute their own chapters covering about every aspect of the distribution phase.
I have heard both Evensky and Katz speak at the Chicago Financial Advisor Symposium, and they are both long time practitioners in the financial planning industry.
Of today's Americans who are over age 85, two-thirds of them have less than $100K in non-home assets.
On page 82, there is an interesting chart showing that at the 4% SWR level, asset allocation does have an impact on the probability of exhausting a portfolio. But once you get to a 6% SWR, asset allocation has virtually no impact on the probability of exhausting a portfolio.
On page 84, the author of this chapter argues that luck has far more impact on portfolio survival than asset selection, asset allocation, and management costs. The same author also recommends only re-balancing your portfolio every 4 years (each Presidential election year)
Pages 88-89 have 2 excellent charts which show the maximum SWR if your stocks get the same return as the DJIA......or the DJIA + 2% for a diversified portfolio.
For the case of your stock return equal to the DJIA:
40 years
30% stocks
25% bonds
45% TIPS
SWR = 3.1%
For the case of your stock return equal to the DJIA + 2%:
40 years
35% stocks
25% bonds
40% TIPS
SWR = 3.5%
The author of this chapter also develops an index for determining how much of a portfolio should be used to purchase immediate annuities. Although the author does not show how he derived his formula......I think this is his derivation process:
RWR = SWR * (1-MA) + MA*AR
Where RWR = required withdrawal rate
SWR = safe withdrawal rate
MA = percentage of portfolio to annuitize
AR = immediate annuity payout rate
In other words, your required withdrawal rate can be made up of the SWR applied to the portion of your portfolio which is not annuitized.......plus the immediate annuity payout rate applied to the portion of your portfolio which is annuitized.
Applying some algebra re-arranges this formula to:
MA = 100 * (RWR - SWR)/(AR - SWR)
If MA < 0, then no need to annuitize.
If MA is 0 to 100, then MA is the percentage of your portfolio which should be annuitized.
If MA > 100, then you should 100% annuitize.
I have seen different academic papers suggesting using 10% to 50% of your portfolio to purchase immediate annuities, but I have never seen a formula for suggesting what percentage to annuitize.
In the Monte Carlo chapter, the authors suggest stress testing a distribution plan by changing from average returns to making the first two years of distribution negative stock market returns. They suggest sometimes then using traditional Monte Carlo analysis. I wondered why even bother with the first two years of negative returns analysis versus just using Monte Carlo.........but my guess is that most investors can understand two successive bad years in the stock market.........but they probably won't understand Monte Carlo.
Bengen's chapter on SWR's is excellent. Bengen is the father of the 4% SWR rule. His research shows that the optimum retirement portfolio has 60 to 65% stocks. He also shows the impact on SWR from:
-adjusting spending to the annual return of the stock market
-the amount of inheritance to leave
-more diversified portfolios than just the S&P 500 and intermediate bonds...
...he shows a mix of small and large cap stocks
The Louis Stanasolov chapter starts out with the famous quotation, "If you are not losing money somewhere in your portfolio, you are not diversified enough."
He points out that from 1966-1982, the S&P returned 6.73% while inflation compounded at 7.24%.
Stanasolov is predicting very low stock and bond returns the next 10 years. He predicts stocks will be low because current PE ratios are the 2nd highest in history. He predicts low bond returns because interest rates are historically low. He recommends 8 funds which are mostly long-short funds in real estate and commodities.
The reverse mortgage chapter is a good primer on reverse mortgages. Most academics are already predicting that since Baby Boomers under-saved for their retirements.....that most Boomers will have to use reverse mortgages. The authors correctly point out.......that due to their high costs.....reverse mortgages should be a last resort.
The chapter on immediate and variable annuities says the rule of thumb for immediate annuities is 20% to 50% of your portfolio. The authors point out that immediate annuities do not help people with very low net worth......and high net worth does not need them....so best application is for people in between these two groups.
I am a fan of low cost immediate annuities for some situations. I was disappointed there was no recommendation for low cost immediate annuity providers like Vanguard or Berkshire.
I am not a fan of variable annuities. The author forgot to point out the average annual expense of variable annuities is around 2%........and the policies and fees are so complicated that it would take a Philadelphia Lawyer to figure them out.
Another item the author forgot to point out on immediate annuities is that most state governments only insure annuity recipients to $100K annuity policies. Check your state for its limits. Most experts recommend buying less than $100K (or the particular state limit) in immediate annuities from different insurance companies to avoid the insurance company bankruptcy problem.
I agree with the author of the chapter on software for the distribution phase of investing. I find it hard to believe there is no standardized methodology for analyzing the decision on when to retire.........and no standard methodology to develop a plan for maximizing income during retirement. Maybe as the 67 million Baby Boomers begin to retire, this demand will drive improved software for the distribution phase of life.
All in all, this is an excellent book with regards to the distribution phase of life. I thought there were several thought provoking chapters on many aspects of the distribution phase.
If you are still in the accumulation phase of life, these books on investing may help you slowly grow wealthier:
Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pro's
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
1 of 1 people found the following review helpful:
 Retirement Income Redesigned: Master Plans, 2008-07-17
The book is a series of articles by different authors. It is only appropriate for professionals or trained amateurs in the field. Quality is uneven. The best is the editors one article which is worth the price of the collection.
2 of 3 people found the following review helpful:
 Practical Advice for a Control Freak, 2007-11-20
I found this collection of essays helpful in securing a better understanding of the implications of portfolio decumulation strategies in early retirement. The essays are written for the practitioner and hence are easier to understand than much of the recent academic literature. I will recommend this book to my CFA.
21 of 21 people found the following review helpful:
Money Well Spent, 2007-08-16
I have read over two dozen books on investing and retirement planning and this is among my favorites. First, there are few books which talk to the subject of distribution (as opposed to accumulation) strategies. Second, the authors have chosen to allow other experts to contribute to their book - 25 of them to be precise. So you are not just getting the advice of one or two people, but the opinions of over two dozen renowned experts in the field. There is a tremendous amount of wisdom contained in the chapters.
As anyone who is a student of investing and retirement planning will know, Harold Evensky is quoted routinely and widely recognized as an expert in his field. Simply getting his advice is more than worth the price of admission. An example is the Evensky & Katz Cash Flow Reserve Strategy (E&KS) which is discussed in chapter 11. I have no doubt I will use this strategy in my own distribution planning.
Also not to be missed in the work of Bill Bengen on sustainable withdrawals, which is presented in chapter 13. Anyone who is contemplating managing their own cash flows in retirement (and even those who entrust this to others) should not miss Bill's views and opinions. He is arguably the leading expert on sustainable withdrawal rates in the financial planning business. I would highly recommend that you also consider purchasing his book, Conserving Client Portfolio's During Retirement, in addition to this fine work. Fortunately that book has recently become available on Amazon so it is now easy to find and obtain. I purchased my copy about 9 months ago and had to order it directly from the Financial Planning Association.
While you may not agree with every opinion expressed in this book, it will certainly get you to thinking (perhaps outside the box) and pressure testing what you think you know.
I'm sure I will use it as a constant guide in managing my own finances.
9 of 10 people found the following review helpful:
Excellent source of advice, 2007-08-03
I have been reading retirement and investment books extensively over the past 2 years (Graham, Gibson, Slott, Stein etc.) and while some have touched on saving for retirement, few have touched on withdrawal strategy. In this book, Harold has gone to great length to spell out the retiree's psychological and economic needs, and offers up excellent options to address both. That section, plus the other fine chapters by other authors, make this a must-have book for the enlightened counselor.
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