Retirement income planning remains a field in its infancy. No less a personage than Nobel Prize-winning economist William Sharpe characterized its complexity as boggling the mind. It is based on models on which little consensus exists. And the thing about models is that, as the name implies, they are tools and constructs but they are not reality. A couple, who together with their advisor model their retirement and develop a spending plan, will certainly throw that plan out the window the first year if an unbudgeted life-saving surgery is required.
Naturally, a good plan builds in all sorts of contingencies, factoring in both desires and risks, as Dirk Cotton explains in the latest installment in his retirement planning series. I quote:
"Desires... identify those objectives we believe would make our retirement a financial success if they are met. Risks are those outcomes that we believe would make retirement successful if they can be avoided.
"Risks tend to be the bad outcomes that most or all retirees face. Not everyone has children or wants to retire in Florida, but no one wants to go bankrupt, see their purchasing power eroded by inflation, or go broke late in life as the result of long-term care expenses."
So, what are those risks that are common enough as to warrant being part of a retirement planning discussion? Cotton tracks down several lists and comes up with at least 18 factors that could be viewed as potentially undermining retirement security.
You can click here to read his article on managing risk and his list of risks. While some of these items may seem inapplicable to you, a good number will strike you as plausible sources of risk. In such an eventuality, the prudent thing would be to act quickly to stanch the financial bleeding, and therein lies the advantage of advanced planning and preparedness.
Meanwhile, here are some other advisor-related links to start your week with:
- D&I Digest: How do we compare and contrast high-yielding income investments such as MLPs, BDCs, CEFs, REITs, etc.?
- In the view of Left Banker, unloved CEFs get the prize for generating sustainable retirement income.
- Ronald Surz on a way to own a core portfolio without all the dead weight of the big market indexes that neutralizes your alpha.
- Bezek: "Yes, the market is 'too high' on a fundamental basis, but markets frequently ignore valuation in the short term."
- The Heisenberg on gold nuggets, silver nuggets and chicken nuggets.
- Kurt Dew explains what bitcoin mining is and why you should care.
- Lawrence Fuller: The robust jobs report has not yet been revised downward (but will be).
- Vanguard offers its quick take on Brexit.
- Michael A. Gayed, CFA offers a longer take about "the real story" of Brexit.
Feel free to post your own thoughts in our comments section.