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anticipates ramping down her activity and adjusting her budget accordingly (the so-called“slow-go” years). Then she anticipates a sedentary period at the end of retirementduring which she will cope with health care issues (the so-called “no-go” years). Patriciawill set up her budgets accordingly and target her investments to match her changingspending needs.5. Major issue — how do we match up investment strategies with the age banding approach?6. Age banding recognizes that needs differ at differing time periods of retirement.a. Understanding of expenses equals understanding the term structure of needs(1) Later retirement moneys needed for health care(2) Earlier retirement moneys needed for leisure activities7. The traditional portfolio looks at 30 years (Video: How can a retirement portfolio beconstructed to match the changing expense patterns during retirement? Littell, Tacchino,Basu)a. Is it a 30-year portfolio or a 3-month portfolio?b. If the portfolio has one required rate of return, there is a mismatch between termrisk and portfolio return.c. The retirement portfolio should require a higher rate of return for 30 years thanfor 1 year.d. If the money needed for year “20” is stuck in a portfolio for money for year “1” wecannot invest properly. This would create a mismatch.8. Segmenting into age bands helps a person get a greater rate of return.a. It allows the client to be more aggressive with money reserved for future periods.b. The immediate time period will be more conservative.9. Bucket approach investing works really well from a behavioral economics standpoint:a. Stocks are for later time periods, so the client can buy and hold rather than worryabout short-term market fluctuations.b. Without looking at a bucket approach, it is difficult to rationalize to a client whystocks should be in a retirement fund.c. Clients can sleep better at night.10. Major issue — how does flooring affect the age banding?a. If we have separated out into necessities, conveniences, and luxuries (prioritiesset)b. Immediate annuity for 1 st (present) age band (the 80s)c. Deferred annuity for 2 nd age band (the 70s) for necessities (annuitize at 70)d. Covering the necessities with guaranteed income11. Variable portion of age banding allows us to forgo luxuries during down markets.12. Variable portion of age banding allows us to take out more for luxuries during up markets.13. Breaking up age bands into needs and luxuries60s 70s 80sNeeds Needs NeedsLuxuries Luxuries Luxuriesa. More likely to work with flooring and age banding6.17