Retirement Archives | Integrated Retirement Advisors

What I Wrote In Chapter 3 of Retire Reset!


by M. Nahum Daniels


If you’ve been wondering about the book I wrote, RETIRE RESET!, we are publishing some excerpts right here on our blog so that you can learn more. Along the way, you will learn why our firm, Integrated Retirement Advisors, was founded: we’re on a mission to help people with retirement!

Here are some excerpts from Chapter 3.


Chapter 3: TIME IS MONEY

Retirement clock management begins with the very first questions posed in the planning process: “When can I (afford to) retire? Can it be sooner, does it have to wait until later or will it be never? And by the way, how long should I expect my retirement to last?”

When a husband and wife aged 65 first visit with me and they’re in reasonably good health, I have to inform them that, statistically, one member of the pair (usually the female) has a 50% chance of making it to age 94 and a 25% chance of making it all the way to age 98. And if she makes it to 98, she has a 50% chance of making it all the way to triple digits, because actuarial science informs us that the longer we live, the better our odds of further survival.

When urging clients to get proactive about their long-term financial planning, I often relate the remarkable story of Dr. Ingeborg Rapoport. It brings home not only the indomitable power of the human spirit, but also the truly amazing advances in human life expectancy that have been achieved over the last century—and continue to be made with increasing velocity.

Dr. Rapoport had already been retired for thirty years when Hamburg University authorities finally gave her a chance to complete her doctoral degree—but only after following all the rules. She would have to stand for an oral exam, questioned face to face by a panel of academics, to defend her original dissertation on diphtheria. The dissertation had been well received when she first submitted it at the tender age of 25, but she was blocked by the Nazi regime from completing the process because her mother was Jewish. Although she went on to enjoy a professional career in neonatal medicine she always felt unfairly deprived and, after 77 years, wanted to right what she felt was an injustice.

Now nearly blind, it was only with the help of friends that she was able to catch up on developments in diphtheria studies during the intervening decades. Dr. Rapoport passed her exams with no age-based indulgences and was finally awarded her degree in 2015, becoming the oldest person ever to be awarded a doctorate, according to Guinness World Records. She was 102.

And that’s the point: Underlying successful retirement planning at any age today is an appreciation of contemporary developments in longevity. No matter your starting point, if you’re in reasonably good health you’re advised to play the long game.


Most retirees are naively complacent about longevity risk

The wealthier and better educated the individual, the more life expectancy improves. If, as frequently happens, one spouse turns out to be 10 years younger when the primary earner reaches full retirement, then to be prudent we should be planning for a 45-year joint cash flow—ideally adjusted for inflation to preserve its purchasing power.

Portfolio design follows on from that core purpose. Thus, our first objective is to figure out how to guarantee a lifelong cash flow to replace previously earned income in amounts sufficient to match your expenses.

In an inflationary environment, time reduces money’s worth and therefore accelerates its use. In a deflationary environment, time enhances money’s worth and defers its use to another day when it will buy more. The longer the time horizon in which these forces play out, the more pronounced the antagonistic outcomes. Thirty years of inflation at 3% results in a 60% loss of buying power; three decades of compounding 3% interest can produce a 140% increase in buying power. That’s a 200% spread, making this a battle that is absolutely worth fighting.


Sequence of returns risk

If you think that an “average return rate” tells you anything about retirement investing, you haven’t seen the effect that sequence of returns can have on a portfolio.


Figure 10 illustrates S&P 500 total returns generated over the 20-year period from 1989-2008. The average return over the period was 8.43%. The first thing to notice is that no single year actually produced a return equal to the average; returns ranged from losses as great as -37% to gains as high as +38%. If we reverse the sequence, the average annual return remains the same.

Figure 11 shows what happens when a retiree starts pulling money out of their portfolio at a rate of 5% per year for retirement income. The clockwise sequence (based on S&P 500 from 1989-2008 from Figure 10) left a theoretical retiree with a $3.1 million asset pool at the end of twenty years available for spend-down over the next 20; the counter-clockwise sequence would have left the same retiree with a miniscule $235,000 that would have to be stretched over a decade or two!


Chapter 3 Takeaways

  1. Retirement planning starts with assuring that your nest egg (with or without inputs from other income sources) serves as a personal pension guaranteeing you the paychecks you’ll need for 30-40 years after you stop working.
  2. As an investor, you need to understand that time is of the essence and that playing the long game means hedging against numerous long-term cyclical risks decades in advance of their possible impact.
  3. Once you begin to spend down, retirement success depends more upon the sequence of returns you earn than the annual magnitude of those returns.
  4. To make your nest egg last for the long run, best practice is to focus on avoiding sharp losses rather than seeking high returns.
  5. True compounding will yield a more predictable outcome than the generation of random market returns that can offset each other, reduce the net result to zero (or less) and waste your precious time.



If you would like to discuss your personal retirement situation, please don’t hesitate to call our firm, Integrated Retirement Advisors, at (203) 322-9122.


If you would like to read RETIRE RESET!, it is available on Amazon at this link:



Rethinking Your Retirement Investing To Hedge Against A Market Downturn


Rethinking Your Retirement Investing To Hedge Against A Market Downturn

Studies show most Americans aren’t saving enough for retirement. A recently-released World Economic Forum report warned that most retirees risk running out of money as much as a decade before death. And the anxiety of being ill-prepared for the golden years can grow when portfolios do not, leading some advisors to recommend over-weighting stocks to provide the impetus for long-term growth.

Retirement planner Nahum Daniels thinks the risk-reward trade-off of investing a retirement nest egg in stocks and bonds can result in even more worry. And, given a bad sequence of returns -coupled with the fact that people are living longer than in previous generations -many retirees could run out of money faster.

“Psychologically, we’ve grown confused about the financial dynamics of retirement,” says Daniels (, author of Retire Reset!: What You Need to Know and Your Financial Advisor May Not Be Telling You. “Since the early 1990s, when the 401 (k) replaced the defined benefit plan in corporate America, there’s been a fundamental shift in perception. When retirement was pension-based, planning was about guaranteed income and the employer had to keep the promises it made. Today, participants in 401 (k) plans have to know about stocks, bonds and ‘Balanced Portfolio’ management because they’re responsible for their own unpredictable outcomes.

“Ironically, centering a retirement portfolio on Wall Street’s securities-driven risk/return tradeoff may actually be a formula for an even more insecure retirement. The reason is the cyclical volatility inescapable in equity markets. Nor are bonds immune from losses: The Fed’s rate manipulations, coupled with our nation’s current $75 trillion debt overhang, introduces an abnormally high level of volatility to bond prices. The real crisis in retirement planning is not just our savings shortfall but our misguided mindset; we need a perceptual shift about what our real goals are and a tactical reset to reach them.”


Daniels offers four principles to reset a retirement portfolio and hedge against a market downturn:

  • De-risk. Whether in the accumulation or spend-down phase, the retirement nest egg cannot afford market losses without eventually paying out less. “Insulate your nest egg from them and guarantee the outcome when you can,” Daniels says. “It’s unnecessary to resign yourself to self-imposed austerity to accommodate market volatility.”
  • “Size your nest egg as efficiently as possible by optimizing the sustainable yield it can generate,” Daniels says. “Work it back from your income need. For example, if your nest egg supports a withdrawal rate of 5 % rather than 3%, you can achieve your goal with 67% less capital.”
  • Daniels says the latest academic research favors the integration of actuarial science with investment expertise in the construction of a “stable-core” retirement portfolio. “Longevity insurance has a heightened economic value in an era of open-ended life expectancy,” Daniels says, “while historically no asset class beats equities for long-term growth potential. Balancing the two is key to getting the best result and hard-boiling the nest egg.”
  • “Today’s fixed index annuity (FIA) lends itself well as the actuarial component of a retirement nest egg,” Daniels says. “Anchoring a stable-core portfolio to it can protect against market declines while still participating in a needed share of upside potential.”


“Buying and selling securities at all the wrong times can increase the odds that you run out of money,” Daniels says. “Retirement investors need a form of protection that can keep them invested without costing so much that it devours their return in the process.”


About Nahum Daniels

Nahum Daniels ( is the founder and chief  investment officer of Integrated Retirement Advisors, LLC. He is the author of Retire Reset!: What You Need to Know and Your Financial Advisor May Not Be Telling You. A Certified Financial Planner and Retirement Income Certified Professional, Daniels has served mature investors for over 30 years.

Retirement Guidelines for Millennials

Millennials looking to retire at age 65 have thirty to forty years to prepare and another thirty to forty years to provide for.  Here are some guidelines we use in our practice:


Acquire discipline: set aside 10% of disposable income to the retirement nest egg.

Open your eyes:  Retirement investing is intended to ultimately generate decades of income in the distant future to sustain unprecedented longevity.

Learn patience: the nest egg should be “put to work” by compounding consistent gains; aim strategically for singles and doubles rather than swinging for the bleachers.

De-risk:  Market volatility and realized losses, especially early in the accumulation or spend-down phase, can undermine the best-laid plan and the ability of the nest egg to achieve its long-term income objectives, so avoid them.

Seek shelter: The retirement portfolio should be insulated from rising taxation, the most consistent drag on growth especially for Millennials who may face higher taxes than their forebears.   It should therefore be “nested” in IRAs, Employer qualified plans, deferred annuities and cash value life insurance to provide the needed tax shelter.

Hedge:   Invest the nest egg for the long term insulated from downside risk but positioned to share in the market’s upside potential.

Diversify:  Another key to long term investment success, diversify across asset classes in terms both of tactics and strategy.

Think outside the box:  Explore the economic advantages offered exclusively by actuarial science rather than limit yourself to conventional stock-and-bond investing.

Integrate:  learn how next-gen longevity insurance can complement securities in a retirement portfolio to achieve more predictable results.

Consider the alternative:  Evaluate the multi-faceted fixed index annuity (FIA) and the role it might uniquely play as a retirement portfolio’s stable core.


What Is An Annuity?

An annuity is first and foremost a stream of payments.  For most retirees, the payor is an insurance company.  Properly regulated, an insurer can “guarantee” the payments it promises; in fact, if an insurer gets into trouble, annuitants in payout status are considered senior creditors, i.e., they get paid first—even before the rent.

Annuities can pay for a specified number of years or for a lifetime or two, which given today’s extended life expectancies, can be open-ended.  Today’s extended life expectancies gives actuarial science enhanced economic value when it comes to providing a return on investment:  an annuity can yield more from the get-go if average life expectancy is assumed while the longer an annuitant lives, the more payments received, the greater the IRR.  So annuities are best purchased by people expecting to live into their nineties– or even beyond—who don’t want to worry about running out of money no matter how long they survive.

In a traditional fixed annuity, the insurer invests in mostly investment-grade fixed income instruments to match its assets to its liabilities.  Based on its projected earnings (usually reflecting the yield on the US ten-year Treasury) and its projected expenses, it shares the blended yield on its portfolio holdings with the annuitant, paying a fixed return for the guaranteed duration.  The purchasing power of that fixed return will be eroded over time by inflation, which is a key drawback to this structure.  The payout, however, remains unvarying, unless you buy an inflation “rider” which increases it year to year based on some measure, but inflation riders tend to be expensive and depress the initial payout level.

A variable annuity also offers an income that will never run out, but the insurer invests the policy-owner’s premium in equities.  The objective is to generate a higher level of income over time, but the income payout is subject to market risk and can either increase or decrease from year to year.  The potential to decrease—possibly requiring “belt-tightening” and a reduced lifestyle that can end up being permanent—is the biggest drawback to this structure.  A poor sequence of market returns can end up undermining the income floor most annuities are intended to provide.

The fixed index annuity is a relatively new hybrid.  Like a fixed annuity, it guarantees an income floor from inception.  But unlike a traditional fixed, its earnings are linked to one or more market indices and those earnings can be applied to the annual income payout to establish a higher floor from year to year.  If markets are favorable, the annuity income can increase and those increases are rendered permanent; unlike a variable annuity, the income yield doesn’t suffer even if markets have a bad year or two.

The older an annuitant, the higher the initial payout of any income annuity.  So the traditional fixed can be very advantageous for retirees in their 80s.  They should shop for the highest payouts being offered by the better-rated companies and consider a portfolio approach.  The deferred fixed index annuity lends itself well to investors approaching or just entering retirement, say between ages 55 and 75, aspiring to give inflation a run for its money over the long term without taking a hit on the initial payout once begun and risking income reductions if markets decline.

Retiring at 45, the opportunities and the pitfalls



Even retiring in our mid-sixties today poses unaccustomed challenges revolving around our unprecedented longevity–the increasing odds that we might live deep into our mid-90s or even beyond–and our psychological tendency to electively compromise our lifestyles once we stop earning income out of fear of spending too much too soon and running out of money.  So if a thirty-year retirement is bedeviled by these factors, think about a 50-year period extending from age 45!


It’s crucial for anyone seriously contemplating early-retirement to make a study of the complex psychological and financial dynamics involved, or work with an advisor who has.  Most of us don’t know what we’re up against in modern retirement, and that goes for untrained financial professionals as well as clients.  True, it’s an opportunity for extraordinary self-realization but it’s also rife with the risk of financial ruin no matter how much money we may start with.


The “early retirement” planning process really needs to start at the “back end” with a vision of the lifestyle desired.  A new profession of retirement coaching has emerged to assist people in finding meaning in retirement no matter when it might start.  I call this aspect of retirement planning its “soft” side to distinguish it from the financial dynamics; I refer to them as retirement’s “hard” side.  The two are intertwined.


The process of planning a meaningful retirement isn’t “one size fits all ” In financial terms retirement can come in small, medium and large.  How much you’ll need to accumulate, and in what vehicles, will be determined by the cash flow you’ll need to sustain your envisioned lifestyle.   Is your goal to escape the grid and live the single life of adventure or is it to be a high-profile head of household educating your children and practicing communal philanthropy to make the world a better place?  It’s essential to start with your vision of a meaningful life freed from the need to work and earn.  Keep In mind, though, that “meaning” can be expensive to sustain.


Obviously, living on $50,000, adjusted each year for inflation, requires a much smaller nest egg than living on $500,000 or $5 million.  Once you settle on the cash flows you’ll need, you can size the income-producing nest egg required and focus on its core portfolio construction. The more income you can generate from your nest egg–the higher its yield and the more reliable its duration–the more efficient its construction can be and the less capital you will need to get the job done.  This frees up other capital to satisfy your risk appetite or philanthropic intent.


To retire early you will want to start saving and accumulating whatever capital you will need as soon as you have a clear vision and a declared objective.   If it’s to last a lifetime, the nest egg needs to be de-risked to avoid untimely market losses that could prove hard to recover.  Better to position your income-dedicated retirement portfolio to compound safely over time.  Smoothing returns and avoiding losses is key to portfolio design; we believe you should look for financial instruments that can guarantee the outcome.  Next-gen longevity insurance can play a stabilizing role in the nest egg.  Linked to the underlying markets, Its new varieties offer downside protection together with a reasonable share of upside potential both before and during retirement.  We use them extensively in constructing our “stable-core” retirement portfolios.


That’s because losses incurred in retirement planning can undermine even the most consistent effort.  Market risk should be hedged and minimized if not totally avoided.  Taking on uncompensated risk is anathema.


In fact, retirement at every stage is an exercise in risk management.   Risk sensitivity is accentuated the earlier you start and the closer you get to the goal line.


Avoiding depletion is like walking a tightrope.  Success is not dependent on how much wealth you start with; it’s more a factor of the ratio of your spending in retirement to your dedicated retirement capital.   Study the concept of the “safe” withdrawal rate and figure out a way to exceed it without prejudicing your ultimate success.  Getting good advice on how to do that may even be worth paying for.


Unless your income goals in retirement are modest, it’s hard to save enough out of one’s wages to build an adequate nest egg no matter how early you start, especially if you have a spouse and family to feed, house, clothe and educate.  Starting a successful business or owning shares or stock options in a start-up that ultimately gets acquired or goes public are more often the sources of wealth creation among age-45 retirees.  A carried interest in a real estate or financial firm—a share of the profits—can be another path to early riches.


Ironically, while risk taking is often the source of early-retirement wealth, the nest egg itself should be hedged and protected.  In our practice we go further and recommend insuring it for higher initial yield and longevity guarantees that can survive an individual issuer that may go under.


Retiring early only accentuates this ever-present dialectic that characterizes a retirement that, if starting at 45, can last far longer than your work life.


Retirement Investing For Entrepreneurs


Entrepreneurs are risk takers by nature; most swing for the fences in their chosen enterprises.  Most fail once or twice before succeeding.  Many businesses fail even AFTER having succeeded.

Retirement savings need to be approached differently. 

  1. The retirement nest egg should be fed starting as early as possible and should be focused on steady growth with downside protection.
  2. If started early enough and insulated from losses, even 10k per year can compound into a significant portfolio over time.
  3. Not sufficiently appreciated, life insurance is an ideal retirement tool for entrepreneurs under 50. Even older under certain circumstances.
  4. Investment-oriented life insurance compounds with doubled-up vigor by benefitting from the tax-avoidance features it offers; all internal growth is tax-deferred.
  5. In addition, life insurance offers tax-free access to gains in the form of policy loans, usually of the “wash” variety. This turns a life policy into an unlimited Roth IRA.
  6. The Fixed Index Universal Life (FIUL) policy offers the greatest growth potential; some varieties offer extraordinary loan features.
  7. Based on today’s tax regime, nothing beats the retirement funding potential of this financial instrument; what’s more, being tax-free on the payout side takes the recipient off the grid. The cash flow from this source is non-reportable.
  8. The instrument also serves the traditional family protection needs met by life insurance.
  9. It can also serve business needs: funding deferred compensation arrangements; buy-sell agreements with partners and co-shareholders; and key-person coverage to protect the on-going viability and on-going-concern value of an enterprise.
  10. Thus, retirement planning should be built into the wide array of planning needs unique to entrepreneurial endeavor.


Ask us for examples and stories from 30 years’ experience working with small business owners available.

Retirement Investing


Retirement Investing

Although we’ve been led to believe otherwise, retirement investing should not be defined in terms of the “total return” approach embodied in Wall Street’s “balanced portfolio” of stocks and bonds.

While suitable for institutional investors with very long time-horizons that can eventually absorb and recover losses, the retirement “nest egg” should be constructed to generate income to last a lifetime rather than to out-smart the market by out-performing its averages. That’s a very different design goal that requires a very different approach to portfolio construction—even in the best of times.

Market volatility and losses undermine a retirement portfolio’s yield or, in the lingo of the industry, its sustainable withdrawal rate. Earlier studies posited 4% as a “safe” rate of withdrawal (adjusted annually for inflation) that limited to 10% the odds of running out of money after thirty years. With the growing  prospect of outliving a 30-year retirement and with markets priced at historically high valuations on a dozen of metrics, retirement academics have tested the norms and have concluded that today  the prospect of future losses limits a “prudent” withdrawal rate to 2.8% if you want to minimize (but still not completely eliminate) the risk of premature depletion. That means you will need 43% more capital at inception to get the same result.


Of course, retirees may choose to withdraw what they need from their nest eggs (most do) and only tighten their belts later when market trends make it necessary. Or they may simply risk premature depletion (every retiree’s worst nightmare) figuring they’ll end up depending on the state or their children in later years or, if they’re lucky, dying before the piper must be paid.

So whether in the short term or the long term, retirement-portfolio losses that are unlikely to ever be recovered will require sacrifice in the form of lifestyle compromises. Hence the first rule of nest-egg construction is to avoid them. The challenge is to devise an efficient nest-egg portfolio with zero downside risk that doesn’t also abandon the potential for needed growth.

In our practice, we often overweight the fixed index annuity (FIA) to serve as the anchor of a “stable-core” strategy. Leveraging actuarial science, the FIA can yield considerably more from the outset than a balanced portfolio, especially weighed against a “prudent” 2.8% “safe” withdrawal rate, and its cash flow can be guaranteed to last a lifetime or two, no matter how long, eliminating the ever-present dread of depletion often endured by even affluent retirees. In addition, the annuity’s investment methodology protects principal against market declines while still participating to capture a reduced share of upside potential.  The latest academic research in retirement portfolio construction favors this integration of longevity insurance with investment expertise.  That’s why this relatively new hybrid is trending today and worth a careful evaluation.

If you have any questions about your own retirement plan, please reach out to us for a no-obligation consultation. You can reach Nahum Daniels, Integrated Retirement Advisors in Stamford, CT at (203) 322-9122. We look forward to working with you.

Black Swan Portfolio Construction

What Is a Black Swan Event?

Financial professional-turned-writer, Naseem Nicholas Taleb, wrote the book The Black Swan after the 2008 stock market crash. He pointed out an interesting problem with statistical modeling in financial planning.

For most of history, swans were large birds known for their striking, white color. In fact, swans were considered nearly synonymous with the color white for centuries. Referring to a “black swan” meant something completely impossible or presumed not to exist. That is, until 1697, when seafaring explorers discovered black swans in the southern hemisphere of the New World.

Thinking about the discovery of black swans lead Taleb to think of an interesting logic problem—how many white swans would you have to see in order to predict the next one would be black? His answer: You wouldn’t. You didn’t even know they existed, so you would never predict one, no matter how many swans you saw.

Essentially, you don’t know what you don’t know, and so your statistical model may be missing a critical factor in calculating financial projections. You must account for unforeseen black swan events in the construction of the retirement portfolio.

The Ten Principles of Retirement Portfolio Design:

  1. The future is always uncertain and bad things—like fat tails and burst asset bubbles—happen when least expected, so retirees and those nearing retirement should plan to withstand the worst possible economic outcomes while positioned to participate in the hoped-for best. Retirees are therefore well-advised to focus on risk mitigation in addition to asset class diversification, choosing investment vehicles that hedge and minimize risk, especially tail risk.
  2. In an unfortunate turn for current retirees and those nearing retirement, our economy faces serious demographic headwinds. At the same time, tax increases and government-benefit decreases seem inevitable while life expectancy improvements mean a retirement that may last for 30 years or more.
  3. Markets may be extremely volatile during this period and, as in Japan over the past thirty years, entire decades may be “lost.” Between October 2007 and February 2009, for example, the S&P 500 stock index fell over 50% then almost doubled from its low through February 2011. The historical prices tracked by Yahoo Finance reveal that from 2000 through 2009 the broad market index fell over 25% (from 1,469 to 1,074), dealing buy-and-hold investors a loss of capital, time and opportunity. Buying-and-holding in roller coaster-like equity markets can result in entire decades of lost potential growth. Nor is capitulating and moving to the sidelines an adequate response: Most retirees cannot afford to miss snapback opportunities. They need to make money even in bad economic times and, especially, in secular bear markets.
  4. The Federal Reserve can intervene specifically to drive interest rates paid on savings as low as possible and keep them there for as long as needed. This means very low returns on bank deposits, Treasuries and investment-grade corporate bonds for the foreseeable future, driving investors to take on greater and greater risk even in fixed income instruments. But bond markets, including those for government and municipal paper, can be volatile and are not immune to significant losses. In fact, all asset prices may end dramatically lower when Fed intervention ends.
  5. Reflecting adverse demographic trends, slow growth and heavily indebted consumers, a “new normal” of below-average investment returns may have already set in to reduce the weighted average return on a portfolio of 60% stocks/40% bonds to levels below historical averages over the coming decade despite the potential volatility risk which, in effect, will have to be endured uncompensated. A more conservative portfolio consisting of 40% stocks/60% bonds will likely deliver even lower annual returns. In the new normal, the risk/return ratio is not likely to favor the investor, while low returns may necessitate dipping into principal.
  6. Research confirms that the primary risk that must be managed by retirees as they take withdrawals from their accumulated savings is “sequence” risk. Ignored at one’s peril, it reflects not the average return over a period of years, but the sequence of those returns. Some generations are lucky: they retire when share prices are low and cash out as shares rise into a market boom, so their savings can sustain a dream retirement with wealth left over. Negative returns in early withdrawal years can result in shockingly rapid asset depletion: unlucky generations cash out in such declining markets and their savings can be quickly depleted resulting in a nightmarish retirement characterized by insufficient cash flow and painful belt tightening.
  7. Retirement savings by definition are intended to be spent down over one’s life expectancy. They should be distinguished from legacy assets that are intended for wealth transfer to future generations. Historical studies of the past century conducted by Jim Otar have shown that from age 65, a sustainable withdrawal rate offering the highest likelihood of success in lifetime portfolio survival cannot exceed 3.6% per annum. Thus, if you are 65 and need income of $36,000 per year, adjusted for inflation to maintain purchasing power, you should have $1 million set aside to rest assured that you and your spouse won’t run out of money. Taking a higher percentage each year risks premature depletion even in good times; it can be a recipe for retirement disaster in bad.
  8. As advocated by Warren Buffet and other classic value investors, risk-management to achieve capital preservation is the first order of business when it comes to long-term investment success. As a corollary, Buffet-like investors deem it well worthwhile to forego some upside potential (even half or more) to increase stability of principal. This truism is even more fundamental to retirement asset management: Principal protection, stability and liquidity trump maximizing upside performance for core holdings dedicated to providing lifelong income that can grow to keep up with inflation.
  9. Since even bear markets rally and the most astute prognosticator may be wrong, an optimal core portfolio protects against market declines while participating in positive price movements even in extended down markets. Insulating the investor from loss obviates the need for market timing and circumvents the behavioral tendency to buy high, sell low and miss market snapbacks.
  10. In assembling a “core” retirement portfolio, ongoing counterparty risk must be continually evaluated and managed at the lowest possible cost to the investor. The Standard & Poor’s 500 Index (“S&P 500”) is an unmanaged, market capitalization weighted index of 500 widely held stocks, with dividends reinvested, and is often used as a proxy for the stock market and cannot be invested in directly. The term “black swan” refers to very low probability events that are major market shocks able to wreak investment havoc.

Equity Indexed Annuities (EIAs) are not suitable for all investors, but may provide part of the core retirement portfolio designed to help protect retirees from black swan events. EIAs permit investors to participate in only a stated percentage of an increase in an index (participation rate) and may impose a maximum annual account value percentage increase. EIAs typically do not allow for participation in dividends accumulated on the securities represented by the index. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Withdrawals prior to age 59-1/2 may result in an IRS penalty; surrender charges may apply. Guarantees based on the claims-paying ability of the issuing insurance company.

In all cases, the retirement portfolio should be monitored and adjusted based on market conditions. Alpha measures the difference between a portfolio’s actual returns and its expected performance, given its level of risk as measured by Beta. A positive (negative) Alpha indicates the portfolio has performed better (worse) than its Beta would predict.

Going Where the Research Leads


By Nahum Daniels, CFP®, RICP®


As a client-facing financial advisor (FA), I view myself as an intermediary whose job it is to communicate in the form of sound, actionable advice the latest findings in academic research and retirement theory unearthed at the institutes and centers of retirement studies. As for my pedigree, I’m a product of The American College of Financial Planning located in Bryn Mar, PA, where I earned its Retirement Income Certified Professional (RICP) designation. Amidst the hundreds of thousands of FA’s in the USA today, there are only 6,000 graduates of this relatively new program, with another 4,000 or so currently enrolled.

I can humbly report that, developed and taught by some of America’s most respected retirement experts, the RICP curriculum is non-trivial. As a CFP practitioner who has specialized in retirement planning for going on two decades, I felt I needed to earn and maintain the designation if only to make sure I wasn’t missing anything. I certainly owed that to my clients and any members of the public who could fall within hearing distance or reading range.

In August 2015, Wade Pfau, PhD/CFA, professor of retirement income in the PhD program at The American College, published the results of a quantitative analysis he painstakingly performed comparing immediate annuities to bond funds in retiree nest eggs. It was entitled: Why Bond Funds Don’t Belong in Retirement Portfolios. Pfau’s findings challenge one of Wall Street’s most fundamental dicta: that bonds provide ballast to a balanced portfolio and should therefore comprise 40% to 60% of a retirement portfolio. Instead, Pfau announced that a classic insurance product, the immediate annuity, is a more efficient, higher yielding and far more reliable alternative. Therefore, he concluded, the retirement nest egg should be invested in a combination of income annuities and stocks!

Building on those findings in a paper presented at the 2018 Actuarial Research Conference, Michael Finke PhD, Dean of The American College, presented the results of a study he conducted with David Blanchett PhD, Head of Retirement Research at Morningstar Investment Management, that calculated the increased stock exposure rendered “prudent” in a retirement portfolio thanks to the guaranteed income provided by insurance in the form of an immediate annuity.

Preconceived investment notions were further challenged in January 2018 when Roger Ibbotson PhD, Yale Professor Emeritus of Finance and the world’s leading authority on asset class performance from 1926 to present, announced the results of a study he conducted on the Fixed Index Annuity (FIA), a relatively new insurance product that helps preserve retirement assets from market losses while linking them to those same markets to capture a share of their upside potential. The FIA, Ibbotson reported, could out-perform bonds, especially in rising-rate environments like the one we’re in, and should be considered, he recommended, as an alternative for bonds in de-risking retirement portfolios.

If you’ve read my book, you know I recommend the FIA serve as the anchor of your nest egg’s “stable core” and that balancing a retirement portfolio today means combining insurance and securities—and not just stocks and bonds—in suitable proportion. Now you know the identity of some of my intellectual antecedents and why I’m proud to bring their message to you. I urge you to heed it.

Retirement Planning in a Nutshell



Retirement is a unique stage of our lives that at this writing can last a third or more of the years we strut about on this earth. It has its own financial dynamics, different from earlier stages primarily focused on accumulating wealth. Retirement planning is primarily about spending down the wealth we’ve accumulated. That’s why how we manage our retirement wealth, referred to colloquially as our “nest egg,” differs diametrically from investment approaches we may have applied earlier when achieving our other financial goals.

In a nutshell, retirement planning is about generating replacement cash flow. When you stop earning income, those missing paychecks need to be replaced by regular payments from other sources if you want to continue to sustain the lifestyle to which you aspire and/or have grown accustomed.

Thus, in retirement, cash flow is king, but it’s not just any cash flow. To win at the game, retirement cash flow has to meet seven challenging requirements:

1. It must last a lifetime—or two lifetimes if you have a spouse or significant other you care about. But longevity increases with each passing year, so the duration of your retirement income must be open-ended. You simply don’t know how many years you may have.

2. Running out can mean literal ruin, so If you can get it, you want that life-long income to be guaranteed. Say what? What does a “guarantee” even mean in today’s financial world?

3. Retirement income must be impervious to market volatility and losses. The vagaries of global financial markets—including bond markets— must not be allowed to reduce it, because once reduced it’s hard to recover prior levels.

4. Somehow, your retirement income needs to increase to keep up with inflation averaging at least 2% to 4% a year. Without compensating for that erosive force, your purchasing power will lose ground, i.e. you will grow poorer. A fixed income—the same amount paid year in and year out like a pension—simply won’t cut it.

5. Your core income should be at least enough to sustain your desired consumption, i.e., your lifestyle. In our economy, you don’t want to stop consuming. While you can, you need to keep doing so for your own sense of pride; the economy needs you to consume because consumption is its life spring.

6. Ideally, your growing income floor should be reliably under your personal control, pouring out of your properly invested nest egg. This makes you self-reliant. Facing an age of acute uncertainty, you want to be self-reliant.

7. Your core income floor can then be supplemented with cash flow from other sources, like Social Security and a Pension, to create a surplus. If you can see to it, your guaranteed lifetime income should be more than you (think you) need so you can feel free to be generous to yourself and others—without living in constant dread of depletion.

Sounds like a tall order, doesn’t it? That’s because generating “free cash flow” in retirement in the form of guaranteed surpluses is just that. If you think you can do it yourself, good luck. If you’re working with an advisor, make sure he or she knows the real objective and can show you how to achieve it. The good news is that thanks to some of today’s most ingenious financial innovations, it can be done.