Annuities and Retirement Income Planning

Although academic studies evaluate the optimality of annuities, advisers assess solutions in terms of contracts governed by insurance carrier profit objectives, tax code provisions, and regulatory restrictions. A variety of annuities exist and, for each type, there is substantial heterogeneity of contract provisions. Practitioners may benefit from an overview of the US annuity marketplace with… Read more »

How Risky is Your Retirement Income Risk Model?

Sustainability of adequate lifetime income is a critical portfolio objective for retired investors. There are a number of ways to ascertain the likelihood that a portfolio’s investment strategy is suitable to its cash flow requirements. This article provides a brief review of various retirement income modeling approaches including historical back testing, Monte Carlo simulations, and… Read more »

The WealthCaster™ Risk Modeling System: A Technical Description

WealthCaster [WC] is a risk modeling system that illustrates the financial consequences of various portfolio design and asset management elections. It is designed for both trust-owned and individual portfolios; but can be generalized to reflect other asset management environments (e.g., endowments and foundations). In addition to facilitating asset allocation decisions—the user may select up to… Read more »

Jumping Into the Pool

Certain securities are called “pooled” investment funds. These securities provide an efficient way of diversifying a portfolio. Even small dollar amounts invested in a broadly diversified pooled fund can spread investment risk across many individual issues. A U.S. investor attempting to purchase a broad sample of European stocks, for example, would face daunting information and… Read more »

The Investment Trap: Is More Money Better than Less?

If you need to send money into the future to pay for anticipated expenses, you may need to become an investor. Thinking carefully about your desired lifestyle is the first step in deciding (1) how much money you and your family will need to fund your future standard of living; and (2) how much risk… Read more »

An Illiquid Project Can Dry Up Your Wealth

An ‘illiquid project’ – a term that only an economist would think of using – refers to an investment that may not allow you to cash out at the time of your choosing. Alternately, if you demand your money back, you may receive less than market value. An example is an investment with an early… Read more »

Twelve Things About Investing that You Should Know Before You Invest

Investment success is not about what to buy; rather, it is about how to plan. When faced with a complex task like designing and implementing an appropriate investment portfolio, the first solution you think of is often not the best solution. If you’re not evaluating alternative solutions, you’re not investing prudently. What’s the market going… Read more »

When Should You Not be in the Stock Market?

The answer, of course, depends on whom you ask. Here’s our argument: You should not be in the stock market whenever you may have to sell your entire investment. Note that the question is not “Is this a good time to be in the stock market?” If you understand the distinction between the two questions,…

Will You Live Longer than Your Retirement Income Portfolio: Part Two

The Retirement Spending Curve The previous essay made two important points regarding retirement income security: The dollar value of your nest egg is less important than the ratio of that value to your planned spending; and, A 2013 study suggests that financial advisors may underestimate the true costs of retirement by failing to account for… Read more »