{"id":1761,"date":"2013-10-28T06:30:14","date_gmt":"2013-10-28T13:30:14","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=1761"},"modified":"2024-08-12T08:40:09","modified_gmt":"2024-08-12T12:40:09","slug":"retirement-portfolios-shifting-from-accumulation-to-distribution","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/retirement\/retirement-portfolios-shifting-from-accumulation-to-distribution\/","title":{"rendered":"Retirement Portfolios – Shifting from Accumulation to Distribution"},"content":{"rendered":"

\"retirement<\/a>Creating sustainable<\/i> retirement portfolios is as much art as science. The tendency to view our annual capital projections as only science, due to the mathematics of a sophisticated spread sheet, all too frequently lulls clients into compliancy because the \u201cmath works.\u201d The reality is these projections are worthless as soon as the ink dries on the paper on which they are presented. The value of these projections may only be seen over time; the review of annual outcomes over a period of at least five years. What is important is the trend<\/i>. Because the math involved seems to blunt critical judgment my purpose is to afford additional perspective and hopefully provide you with a more realistic way to understand your personal capital projections.<\/p>\n

It has been remarked that one has never seen a level of wealth, or income, which cannot be outspent. I am not suggesting\u00a0clients are profligate. What I am suggesting is that the world is filled with uncertainty; assumptions about future <\/i>portfolio returns, tax rates, inflation rates, financial needs, etc. heighten the challenge to meet future cash flow needs. Furthermore, portfolio withdrawals exacerbate the impact of market declines during the retirement\/distribution phase of life. Bottom line, the shift from accumulation to distribution requires a markedly different model.<\/p>\n

A Paradigm Shift<\/strong><\/p>\n

The notion of \u201cretirement\u201d is actually a recent concept and one that has already become an anachronism. We are beginning to see\u00a0the concept of retirement evolve into \u201cserial\u201d or successive careers. Throughout human history people never thought in terms of \u201cretiring.\u201d One worked until death. According to Ken Dychtwald, for 99% of human history, life expectancy was age 18. No, this is not a typo. People did not age, they died.<\/p>\n

On the first day of the 20th<\/sup> century there were 76 million Americans and life expectancy was 47 years. With the advent of penicillin, and antibiotics as a class of drugs, life expectancy leaped to age 60. On the last day of the 20th<\/sup> century there were 76 million Americans over the age of 50<\/i> \u2013 twice the population of Canada. Life expectancy for today\u2019s newborns is 76 years, but the more affluent tend to live longer and in better health. The reasons for this primarily revolve around access to better health care and a predisposition to take medications as directed.<\/p>\n

(In the U.S. 77 percent of all pharmaceutical products sold are purchased by those over age 50, and many of these drugs are taken prophylactically. There are approximately 100,000 research projects going on that could lead to additional longevity breakthroughs.)<\/p>\n

The U.S. Census Bureau projects by the year 2020 there will be 115 million adults over age 50. Dychtwald, and others, believe it is not far fetched to expect large segments of the population to reach age 100 with some people reaching somewhere between age 120 and 140. Ideally we want to lead a long, healthy, productive life and compress the period of illness and disability in old age into an ever smaller period at the end of life; this is called \u201cmorbidity compression\u201d.<\/p>\n

Demographically, we are clearly living in unprecedented times; for the first time in human history we have mass populations of 50, 60, 70 and 80-year-olds. Furthermore, this longevity explosion has take place in only the past 100 years \u2013 and is highly likely to continue. The implications of increasing longevity are complex and far reaching; America is becoming a \u201cgerantocracy\u201d. What was once the poorest segment of society has become the wealthiest segment.<\/p>\n

When I use the word \u201cretirement\u201d from this point forward, I will be referring to the concept of \u201cserial\u201d retirement while incorporating the concept of \u201cfinancial independence\u201d. We define financial independence as: that point in life at which you can elect to continue to work, or not, because you have accumulated adequate financial resources to maintain your lifestyle (adjusted for taxes and inflation) without the need for earned income<\/i>.<\/p>\n

We have redefined the concept of retirement to include the following assumptions:<\/p>\n