Retirement As A Risky Project: Monitoring, Evaluating, and Managing a Retirement Income Portfolio

Investors, investment advisors, and trustees of irrevocable family trusts face the challenge of providing sustainable periodic cash flows from financial asset portfolios. As the title suggests, this study gives primary emphasis to retirement-income planning for private investors. Initially, the retirement-planning process focuses on designing a portfolio (usually in terms of strategic or tactical asset allocation approaches), deciding on spending (withdrawal) elections, memorializing decisions in a written investment policy statement, and implementing the portfolio through the acquisition of investments. Following the first-stage activities, retirement planning becomes a measuring and managing problem. Although this book does not ignore first-stage activities, it focuses primarily on retirement-income portfolio management where the term “management” encompasses an assessment of investment resources and goals, elucidation of options, and implementation of a process to decide which options are appropriate and prudent.

Retirement is a risky project. We use the term “project” in a real-options sense where the investor has the option to accept the project (start retirement immediately), delay the project (postpone the retirement start date), or, health permitting, reject the project (work for the remainder of life). This book demonstrates that real options are rarely binary. Rather, they exist along a decision path where the advisor invites the investor to consider which asset management options are available currently. Real options, evaluated intelligently, offer the investor both risk and opportunity. This book examines retirement risk and opportunity by considering three metrics: feasibility, sustainability, and flexibility.

Patrick Collins, PhD, CFA®, CLU, is a founder and principal emeritus of Schultz Collins Investment Counsel. He has taught extensively, including portfolio theory in the CFA program and CFA Level Three courses in investment policy and asset allocation. He has published widely in academic and trade journals and is co-author, with Huy D. Lam and Josh Stampfli, of Longevity Risk and Retirement Income Planning (2015). He earned a PhD in English and a professional designation in financial planning from the University of California, Berkeley. Josh Stampfli, MS EESOR, is founder and chief executive officer of Wealthscry, a financial software firm focused on retirement planning analytics. Previously Stampfli worked for two decades on Wall Street where he built two electronic equity trading groups and managed trading, technology, research, and analytics. He earned an MS in engineering and economic systems operations research from Stanford University and a BS in aerospace engineering from Princeton University.