Round Table's approach to retirement income & investing
Income, Growth, Inflation Protection, Legacy...
Different goals require different goals-based investments
Round Table combines state-of-the-art concepts from academia and industry as ingredients in a recipe that we fondly term our “Layer Cake” retirement income and investment model. Rather than throwing your assets into a one-size-fits-all portfolio and hoping for the best, we pull together a snapshot of your complete set of assets (including elements like Social Security and your home) and deploy them in carefully crafted layers, targeting the full spectrum of your needs, goals, and risks in retirement.
A brief outline of the Layer Cake model—from the foundational bottom layer to the aspirational top layer—is given below, but please feel free to contact us to learn more!
Layer 1: Social Security, Pensions, Annuities
For most people, Social Security is the most important source of inflation-adjusted retirement income, and corporate pensions are a nice supplement for those lucky enough to have them. Annuities can provide additional income, in exchange for illiquidity, but inflation-hedged annuity products may be difficult or impossible to find.
Layer 2: Inflation-Protected Income (IPI Model)
If Social Security, etc. is insufficient to cover a retiree’s inflexible spending needs, we pull together ideas that originate with some of the greatest thinkers in areas like lifecycle finance and asset/liability matching1 to craft a portfolio that targets a locked-in, inflation-adjusted stream of income for a prespecified timeframe (e.g., 25 or 30 years), using government-guaranteed Treasury Inflation-Protected Securities (TIPS).
Optional Frosting: Deferred Income Annuity
The “Layer 2” portfolio protects income for a prespecified number of years. To protect against longevity risk, guaranteed income for life beginning at a later age (e.g., 85 or 90) can be purchased for a relatively low cost early in retirement in the form of a deferred income annuity. Round Table does not sell or receive a commission from the sale of annuity products, but as part of our holistic planning approach, we can help our clients weigh the pros and cons of purchasing them.
Layer 3: Dynamic Income/Growth (DIG Model)
Once a retiree’s non-negotiable spending needs are met, it may be sensible to take on some investment risk, in order to create the potential for higher income and/or portfolio growth. Round Table employs a modified version of a time-tested dynamic income and growth strategy2 that employs “guardrails” to seek a balance between three goals that can often conflict: 1. Retirement income maximization; 2. Retirement income stability; 3. Portfolio maintenance and/or growth.
Optional Frosting: Reverse Mortgage
For most people, the two biggest assets in retirement are Social Security and their home. A reverse mortgage is a product that offers the ability to utilize some of the value of a house without having to sell it or move out. It can be used for several purposes, such as to cover emergency spending needs or to supplement income if portfolio assets decline. Round Table does not originate or take a commission on reverse mortgages, but as part of our holistic planning approach, we can help our clients weigh the pros and cons of opening one.
Layer 4: Growth + Additional Goal Targeting
Once a retiree’s income needs have been covered by the lower layers of the Layer Cake, remaining assets can be invested in a growth-oriented portfolio for the long haul (e.g., to fund charitable giving or to leave a legacy), or targeted toward other specific goals, such as a home remodel, funding grandkids’ college, etc.
Optional frosting: Long-Term Care Insurance
Late-in-life care can be one of the largest expenses in retirement. Long-term care insurance can be purchased to offset these costs, but it can be expensive. Round Table does not sell or take a commission on insurance products, but as part of our holistic planning approach, we can help our clients weigh the pros and cons of purchasing long-term care insurance vs. using other assets (e.g., the top layer of the Layer Cake or a reverse mortgage) to self-insure.
Sample Income Projection from the Layer Cake Monte Carlo Model
- See, for example, the article “The Crisis in Retirement Planning,” by Nobel laureate Robert Merton in the Harvard Business Review.
- See “Decision Rules and Maximum Initial Withdrawal Rates,” by Jonathan Guyton and William J. Klinger in the Journal of Financial Planning.
DISCLOSURES: The above chart is an example and not real. Therefore, it is hypothetical in nature, for illustrative purposes only, and are not based on any specific individual’s financial situation. Projections are based on assumptions and are not guaranteed. Model outputs will depend on specific circumstances and input choices, and actual results will vary, perhaps to a significant degree.