<p>Preface xiii</p> <p>Acknowledgments xxi</p> <p><b>PART ONE Framing the Problem</b></p> <p><b>CHAPTER 1 Portfolio Focus and Stage of Life 3</b></p> <p>A “Balanced” Portfolio Approach May Not Last Through Retirement 4</p> <p>Retirement Saving versus Retirement Income: An Illustration 10</p> <p>Products versus Solutions 11</p> <p>Summary 12</p> <p><b>CHAPTER 2 The Top-Down View</b></p> <p>A Short Primer on Economic Models of Retirement Income 13</p> <p>An Overview of Economic Models of Retirement Income 14</p> <p>Reconciling Retirement Income Portfolio Construction with Accumulation 15</p> <p>The Dynamics of Risk Aversion 19</p> <p>Separation between Flooring and Upside 21</p> <p>Fully Funded versus Underfunded Flooring 22</p> <p>Monetizing Mortality 23</p> <p>Taking Market Risk 23</p> <p>Risk Is Risk, Is It Not? 24</p> <p>Risk, Uncertainty, and Risk Aversion 25</p> <p>Summary 25</p> <p><b>CHAPTER 3 The Importance of Lifestyle Flooring 27</b></p> <p>Amount of Flooring: A Balance Sheet View 28</p> <p>Retirement Requires Outcomes, Not Just Expectations 30</p> <p>Consumption Needs 32</p> <p>Yes/No Planning 33</p> <p>The Window for Maintaining Lifestyle 34</p> <p>The Bedrock Floor 36</p> <p>The Aspirational Floor 37</p> <p>The Finished Floor 38</p> <p>Nominal versus Real Flooring 38</p> <p>Types of Flooring 42</p> <p>Choosing a Flooring Type 45</p> <p>Summary 48</p> <p><b>CHAPTER 4 Monetizing Mortality Annuities and Longevity Insurance 49</b></p> <p>Risk Pooling 50</p> <p>Pure Longevity Insurance 50</p> <p>Annuities 52</p> <p>Complex Annuities 54</p> <p>Credit Risk and Insurance 55</p> <p>Summary 57</p> <p><b>CHAPTER 5 Flooring with Capital Markets Products 59</b></p> <p>Government-Issued Securities 60</p> <p>Creating a Floor of Strips 61</p> <p>TIPS 63</p> <p>Municipal Securities 65</p> <p>Corporate Securities and Other Financial Products 66</p> <p>Summary 67</p> <p><b>PART TWO Adapting Portfolios for Retirement Income</b></p> <p><b>CHAPTER 6 Building Retirement Income Portfolios 71</b></p> <p>Portfolio Sleeves for Retirement Income 72</p> <p>Portfolio Intuition 76</p> <p>Basic Portfolio Constructs 77</p> <p>General Accumulation Plans for Retirement Income 81</p> <p>Taxes and Retirement Income Portfolios 81</p> <p>Summary 85</p> <p><b>CHAPTER 7 Creating Allocations for Constructing Practical Portfolios by Age and Lifestyle Needs 87</b></p> <p>Flooring Allocations 88</p> <p>Longevity Allocations 93</p> <p>Precautionary Allocations 96</p> <p>Discretionary Equity Allocations: Assets with Risk 97</p> <p>Summary of Allocations 99</p> <p>Summary 103</p> <p><b>PART THREE Managing Portfolios for Retirement Income</b></p> <p><b>CHAPTER 8 Rebalancing Retirement Income Portfolios 107</b></p> <p>Rebalancing the Discretionary Wealth Subportfolio 108</p> <p>Rebalancing the Functional Components 109</p> <p>Raising the Floor 111</p> <p>Summary 112</p> <p><b>CHAPTER 9 Active Risk Management for Retirement Income Portfolios 115</b></p> <p>Static Example 118</p> <p>The View from the Capital Markets Line 121</p> <p>Risk Management and Expected Returns 122</p> <p>Simple Rules: For Passive and Active Risk Management 122</p> <p>An Inelegant but Simple Plan 124</p> <p>High-Water Mark Flooring 125</p> <p>The Cushion 126</p> <p>Risk Rules: Periodic Rebalancing 128</p> <p>Risk Rules: More Active Rebalancing 130</p> <p>CPPI and Volatility 132</p> <p>Taxation and Active Management 133</p> <p>Locking in Flooring: Long End versus Short End 134</p> <p>A Quick Note on Usability, Scalability, and Approaches Other Than Liability Matching 135</p> <p>Playing with Fire in a Retirement Income Portfolio 135</p> <p>Summary 138</p> <p><b>PART FOUR Making It Happen</b></p> <p><b>CHAPTER 10 The Transition Phase 141</b></p> <p>What the Transition Is About 142</p> <p>The Order of Transition 144</p> <p>A Diffi cult Transition 146</p> <p>When to Transition 148</p> <p>Making the Transition Seamless 150</p> <p>Creating a Business Model that Includes a Natural Transition 152</p> <p>Sudden Transitions 153</p> <p>Summary 153</p> <p><b>CHAPTER 11 Putting Together the Proposal 155</b></p> <p>Laying Out Client’s Assets to Show Current Status 156</p> <p>Minimally Invasive Surgery: Reconfi guration Proposal 158</p> <p>Lifestyle and Flooring Types 160</p> <p>Accumulation Plan Types 160</p> <p>Allocations 161</p> <p>Passive Versus Active Risk Management 163</p> <p>Summary 165</p> <p><b>CHAPTER 12 Market Segmentation 167</b></p> <p>Segmentation for Traditional Portfolios 168</p> <p>Segmentation for Retirement Income Portfolios 169</p> <p>Summary 175</p> <p><b>CHAPTER 13 Products and Example Portfolios 177 </b></p> <p>Overview of Products Offered 177</p> <p>Managing Expectations around Outcomes 184</p> <p>Example Portfolios 185</p> <p>Summary 202</p> <p><b>CHAPTER 14 Preparing Your Client for a Retirement Income Portfolio 203</b></p> <p>Know Your Resources 207</p> <p>Lifestyle and Life Cycle 210</p> <p>Risks to Your Retirement Lifestyle 212</p> <p>Lifestyle and Flooring Types 214</p> <p>What the Adviser Needs from the Client 221</p> <p>Summary 221</p> <p><b>CHAPTER 15 Salvage Operations, Mistakes, and Fallacies 223</b></p> <p>Mistakes and Fallacies 224</p> <p>How to Dig Out of a Hole 228</p> <p>Summary 233</p> <p><b>APPENDIX A</b></p> <p>History of Theoretical Developments in Life-Cycle Planning 235</p> <p>The Model 235</p> <p>Rising Lifestyles and Habit Formation 238</p> <p>Empirical Studies of Life-Cycle Behavior 241</p> <p><b>APPENDIX B</b></p> <p>How Professionals Can Maximize the Usefulness of this Book 243</p> <p>Transaction-Oriented Salespeople 243</p> <p>Asset Gatherers 245</p> <p>Insurance Planners 246</p> <p>Financial Planners 247</p> <p>Portfolio Managers 248</p> <p>Notes 251</p> <p>Glossary 265</p> <p>References 271</p> <p>Index 275</p>