Retirement Income Redesigned:
Master Plans for Distribution: An
Advisers Guide for Funding Boomers
Best Years
Money Well Spent
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 nations 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.
Personal Review: Retirement Income Redesigned: Master Plans
for Distribution: An Advisers Guide for Funding Boomers Best
Years
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 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:
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
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