Retirement Floor And Upside How To Calculate Floor

We will explore the optimal investment.

Retirement floor and upside how to calculate floor.

So that is a non technical overview of how to establish a retirement income floor while keeping an upside. Then i discussed the options for additional income in early versus late retirement. The floor and upside strategy for financing retirement is sometimes referred to as safety first and derives from the theory of life cycle saving and investing 1. Social security is calculated on a sliding scale.

I agree 100 with you that the floor and upside model but have also come to the conclusion that if you can afford to adequately fund this model you don t really have a retirement income problem floor and upside is quite expensive because you have to fund 30 years or so of retirement with low yielding treasuries. The companion component is the search for upside through exposure to risky assets such as equities. View your retirement savings balance and calculate your withdrawals for each year. Lastly i presented the case for annuitizing as needed during the latter phase of life.

I started by reviewing the risks to a distribution portfolio. 1 conceptually commit some portion of assets to an income floor 2 for simulation purposes zero out that portion of assets and convert it into an at risk income stream that grows at some rate 3 3 allocate any excess assets 100 to an upside risk portfolio as a long term. At the same time the retirement income industry association riia argues that the fundamental goal of retirement income planning is to first build a floor then expose to upside the riia s goal can be reconciled with the fpa s categories by remaining aware about the potential flooring available with current retirement assets. But the floor is just one component of the investing strategy.

Then using a floor and upside utility function i will cover how to compute the optimal investment strategy despite the uncertainties that exist. The basic idea was this for someone with the asset capacity to be able to execute a floor and upside strategy. Riia has also created a client segmentation matrix that advisors can use to identify which investors need a floor as part of their retirement income investing. And finally the fun part of the talk.

First i will explain what a utility function is why it is important and what floor and upside utility functions look like. Use this retirement calculator to create your retirement plan. This highlights that there are two ways to think about retirement income flooring.