Blog Series: Retirement Income Architecture

March 1st 2017, by Garrison R. North

For our next blog series, we will be outlining a service that many of you have experienced at Master’s: Retirement Income Architecture. Instead of using a financial product as a “solution” for retirement income, we employee our Retirement Income Architecture process to help clients plan for this need. For clients who are approaching or already in retirement, creating a plan for retirement income that is sustainable and meets their needs is generally the most pressing concern we need to address.

Our philosophy behind this process is that retirement income generation needs to be an ongoing process that is proactively managed, as opposed to being a one-time strategy put together at the time of retirement. An intentional, proactive approach allows a client to adjust for varying factors that are sure to change throughout their retirement, such as their spending habits, inflation and market performance.

We also look to academia to guide us regarding assumptions we make within a plan. For example, we are told that 73% of women age 65 and 55% of men age 65 are likely to need some form of long term medical care in their lifetime. This creates a risk that needs to be accounted for on an ongoing basis in a retirement income plan. We are also aware of the sequence-of-returns risk that retirees face. That is, retirement outcomes are greatly influenced by investment returns realized during the first few years of retirement. Good returns can lead to outstanding outcomes down the road, while poor returns can significantly hurt a retirement income plan in the later years of retirement. This is another risk that we need to take into account when we build a plan.

We will explore a few more components of retirement income architecture over the next few weeks, such as a calculation we call the income-to-asset ratio that helps discern if spending needs are in line with resources, how we build inflation assumptions into the plan, and the bucketing of assets approach we employ. We hope that this blog series gives you a deeper look the considerations necessary to building a retirement income plan.