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Retirement Management

How We Work

We use your household balance sheet (not rules of the thumb or arbitrary formulas) to determine your upside/floor/longevity/reserves allocation.

Upside is the amount of your savings that you do not need to fund any expenses throughout retirement-its your surplus

  • You can invest it in stocks and expose it to market risk for upside growth without the fear of jeopardizing your living standard
    • When the market is down, you can wait it out, even add to your holdings at lower cost, since you don't need to make withdrawals from upside (sell stocks) to fund your expenses
    • Upside is used throughout retirement to replenish the floor-this is called rebalancing
    • Upside is typically invested in a global market portfolio of low-cost stock index funds

Floor is the amount you need to fund your expenses net of your "social capital" income-social security benefits plus pension benefits

  • The closer to retirement you are and the more you need to use your savings to cover the floor, the safer and more guaranteed the holdings of the floor allocations need to be
    • If you are well-funded, floor can be carried "at-risk" in bond funds
    • Safer, locked in "risk free" floor is generally made of ladders of Treasury bonds and CDs

Longevity is the amount of your savings devoted to insuring you don't outlive your money

  • For those who are well-funded or have a probability of not exceeding average life expenctancy, this is less of an issue
    • Typically the longevity allocations is covered delaying SS (larger benefits) or buying immediate or deferred simple income annuities (longevity insurance)

Reserves is the amount of your savings allocated to covering risks not managed by the upside,floor, and longevity allocations

  • Typically, it is held as cash equal to one year's annual expenses, but varies by individual household risk exposures