section 1 - The American College Online Learning Center

e. The bucket approach can be thought of as a subset of the systematic withdrawalapproach.f. Planning Point: The bucket approach may have more appeal to clients than thesystematic withdrawal approach—even though one could argue it is doing thesame thing as the systematic withdrawal approach—because:(1) The first bucket is not subject to market volatility(2) The other buckets are “down the road” so market volatility can be toleratedg. However, the sum of the buckets is not greater than the whole (it really is allocationof the whole portfolio).h. Planning Point: The bucket approach may lead to the same 50-50 / 60-40 portfoliothat was envisioned in the original systematic withdrawal portfolio approach.i. The buckets do not lead you to any differences in aggregate portfolio design thanthe systematic withdrawal approach.(1) However, clients understand the bucket approach better than thesystematic withdrawals.j. The risk of the bucket approach—what happens if you reach the time frame for thesecond bucket but the markets are not favorable for doing that(1) Policies and procedures need to be in place.8. Flooring (also known as essential vs. discretionary)a. Under the essential versus discretionary approach a portion of the portfolio isput into guaranteed or low-risk products or ladder strategies to create a “floor”for the client.b. The floor can be created with immediate annuities but it is not always created withimmediate annuities. There are several other ways to create a floor.c. Planning Point: Regardless of which approach is used, Social Security (whenavailable) creates at least a partial floor. What’s more, a delayed Social Securityclaiming age creates a larger part of the floor.d. Sometimes the essential vs. discretionary approach is thought of as annuitizationfor the core piece and invest for the rest.e. Planning Point: Clients think of standard of living, not essential vs. discretionary(1) Flooring may require the lifestyle to be altered, if too much of the client’sassets must be consumed to provide the floor and not enough assets areleft to continue the discretionary purchases that are part of the client’sstandard of living.f. The strategy that forced clients to alter their standard of living the most after theGreat Recession of 2008 was discretionary vs. essential.(1) The fund for essential expenses left them with less “nest egg.”(2) The remainder nest egg was impacted and it made them adjust theirstandard of living.g. Is retirement success “food on the table and roof over the head,” or “meetinglife goals?”h. Planning Point: Distinguish between strategies that keep one from being destitutefrom strategies that help the client meet their goals. Sound retirement incomeplanning obligates the planner to use an approach that helps the client meet his orher goals, not just keep them from being destitute in retirement.6.5