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Will You Run Out of Money in Retirement? The Right Income Plan Can Help

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One of the most persistent analogies I have heard in my career as a financial adviser is the story of climbing and descending Mount Everest. As the story goes, more climbers perish on the way down the mountain than do climbing up it. We then equate our clients’ wealth journey with that of climbing Mount Everest – spending lots of time and effort to get to the summit of peak financial wealth (i.e., retirement) only to be left with the question, “How am I to descend the mountain safely?”

While many analogies are tired and overdone, this is actually not a bad one. The problem is this: We as an industry have done an awful job at guiding our clients down the mountain with the same degree of care that we provide on the way up.

Until just within the last decade or so, our standard answer for descending the retirement mount has been the venerated “4% Withdrawal Rule,” popularized in the mid-’90s by historical study of withdrawal rates by William Bengen. Although this rule has been regarded as relatively failsafe, many of the assumptions used in its origination are incongruent with many of the assumptions we make for our clients’ retirement roadmap today.

There is a better way to help clients build an income strategy for retirement, and our clients deserve just that.

Most advisers are already familiar with the concept of probability-based planning using Monte Carlo analysis. The same concept holds true for distribution planning. Although we cannot ensure a given level of income from the portfolio over time, we can reasonably expect the........

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