• Dave Anthony, CFP

Retirement Planner or Retirement Income Planner? It Makes a Difference...

Updated: Aug 21, 2018

Build a Floor and Create Upside Potential

Most investment professionals specialize in managing client assets, with an eye toward maximizing accumulation during the clients‘ working lives. The duties of a retirement income professional, like Anthony Capital, however, is much broader. Advisors need to manage their clients‘ assets, liabilities and cash flows, with an eye toward minimizing risk during their clients‘ retirements.

We developed a hub-and-spoke framework to present retirement income approaches. The framework has seven aspects—a hub, five spokes and an integrative process. You are at the center of the hub, and the spokes are the steps in a process of integration and monitoring. We call them spokes rather than steps for two reasons. First, they represent a cyclical process of interaction with the client that has no specific beginning or end. Secondly, each one strengthens the advisory relationship.

The objective: To build a floor and create upside potential

We assume that, during retirement, you'll need a sufficient level of income (a floor) from guaranteed or low-risk sources, as well as the potential for growth through exposure to risky assets (the upside).

Building a portfolio for retirement income isn‘t necessarily harder than building a portfolio for asset accumulation, but it does require a deeper assessment of the client‘s needs. The investment of more time at the beginning of the relationship can pay off, however, in the creation of satisfied clients.

The Hub and Spoke Model

The Hub at the Center of the Advisory Process: The Client

Intuitively enough, you stand at the center or ―hub of the process. However, the retirement client segmentation is not based on Assets Under Management (AUMs) only but on a ratio of the client‘s annual consumption in retirement to their Financial Capital.

Spoke 1: “The Household Balance Sheet”

Is the Start of a “Life-Cycle” Plan Focusing first on the household‘s balance sheet, analyzing your income statement (current income versus current expenses), balance sheet (assets versus liabilities), and cash flow statement (a snapshot of cash inflows and outflows). This is the first step towards creating a Life- Cycle Plan. This can take place before, at or after retirement, but the earlier, the better.

Spoke 2: “Cash Flows” and the Completion of the Life-Cycle Plan

Match your anticipated social capital (e.g., Social Security, pension income), human capital (e.g., income from work in retirement) and financial capital (investments) with your income statement, balance sheet and cash flows. We determine the portion of your minimum income or ―floor that social and human capital can provide, and how much you will need to come from financial capital. This step completes the creation of a Life-Cycle Plan.

Spoke 3: “The Retirement Risk Profile” and the Retirement Income Plan

Turn the Life-Cycle Plan into a retirement income plan that matches your income. Three sources of capital to the potential costs associated with your identifiable retirement income risk factors (e.g., health risk, inflation risk, longevity risk, etc.).

Spoke 4: Risk Management Allocations to Design “A Floor with Upside”

Using your financial capital, we create an income floor through the allocation of risk management techniques that are compatible with y risk profilele. Then, with any remaining assets, we create an upside. In making the allocation, we will choose a mix of risk management techniques including risky assets (stocks, bonds, mutual funds, ETFs), insured products (annuities), hedged or financially engineered products (e.g., structured notes), and risk- free assets (government securities.

Don't trust your retirement to just any planner, work with a Retirement Income Planner!

At Anthony Capital we follow a six step financial planning process and The Income for Life Model®–an investment strategy with the objective of providing an inflation-adjusted income for life.

From start to finish, we can take you through the financial planning process to help you achieve your financial goals. Click here to learn more.