PLANSPONSOR - October/November 2018 - 18

Income for the Retirement Years:
Optimizing the Main Decisions
in Retirement
AUTHORS
AUTHORS
AUTHORS
O in Retirement
in Retirement
Steve Sapra
Executive Vice President
Client Solutions and Analytics
Steve Sapra
Executive Vice President
Client Solutions and Analytics
Steve Sapra
Executive Vice President
Client Solutions and Analytics
ncome for the Retirement Year :
ptim zing the Main Decisions
Financial advisors and their clients planning for
retirement must navigate a set of intricate and
interrelated decisions. When's the best age to start
taking Social Security benefits? How should assets
be allocated? Does an annuity make sense? These
decisions are complicated enough in isolation.
But when they're addressed together, they grow
exponentially more complex.
Financial advisors and their clients planning for
retirement must navigate a set of intricate and
interrelated decisions. When's the best age to start
taking Social Security benefits? How should assets
be allocated? Does an annuity make sense? These
decisions are complicated enough in isolation.
But when they're addressed together, they grow
exponentially more complex.
Financial advisors and their clients planning for
retirement must navigate a set of intricate and
interrelated decisions. When's the best age to start
taking Social Security benefits? How should assets
be allocated? Does an annuity make sense? These
decisions are complicated enough in isolation.
But when they're addressed together, they grow
exponentially more complex.
Complications arise because each decision affects the others. The chosen asset allocation at
retirement, for instance, affects both the level and sustainability of income generated by their
investment portfolios. Social Security can be an excellent hedge against longevity risk, but delaying
benefits means a larger fraction of a client's investment portfolio may be needed for consumption in
the intervening years. This, in turn, may affect the asset allocation and whether to buy an annuity.
Ying Gao
Vice President
Client Solutions and Analytics
Ying Gao
Vice President
Client Solutions and Analytics
Ying Gao
Vice President
Client Solutions and Analytics
Complications arise because each decision affects the others. The chosen asset allocation at
retirement, for instance, affects both the level and sustainability of income generated by their
investment portfolios. Social Security can be an excellent hedge against longevity risk, but delaying
benefits means a larger fraction of a client's investment portfolio may be needed for consumption in
the intervening years. This, in turn, may affect the asset allocation and whether to buy an annuity.
We provide a framework for answering these questions collectively. Our model seeks to optimize
decisions by aiming to generate the most stable and consistent income stream possible for a given
retiree's wealth and Social Security income. We illustrate the interrelationships among these
decisions in two hypothetical case studies - one for an individual with moderate income and low
wealth, and one for someone with high income and high wealth.
Based on our model, we conclude that the mix of stocks and bonds one should hold at retirement
depends significantly on an individual's level of wealth and that the decision to annuitize is
relatively consistent across the wealth spectrum, albeit with differing allocations.
For additional details on methods and results, please see our In Depth article, " Income for the
Retirement Years: A New Model for Seeking Stable Retirement Income. "
We provide a framework for answering these questions collectively. Our model seeks to optimize
decisions by aiming to generate the most stable and consistent income stream possible for a given
retiree's wealth and Social Security income. We illustrate the interrelationships among these
decisions in two hypothetical case studies - one for an individual with moderate income and low
wealth, and one for someone with high income and high wealth.
Based on our model, we conclude that the mix of stocks and bonds one should hold at retirement
depends significantly on an individual's level of wealth and that the decision to annuitize is
relatively consistent across the wealth spectrum, albeit with differing allocations.
For additional details on methods and results, please see our In Depth article, " Income for the
Retirement Years: A New Model for Seeking Stable Retirement Income. "
Let's examine the key decisions:
SOCIAL SECURITY
Let's examine the key decisions:
SOCIAL SECURITY
Social Security benefits retirees not only by providing a stable income stream, but also by hedging
both inflation and longevity risk. Recipients can initiate benefits between age 62 and 70. Starting
ear blioetr provides immediate income but delaying from age 65 to 70 boosts benefits payments by 43%.
Let's examine the key decisions:
SOCIAL SECURITY
Social Security benefits retirees not only by providing a stable income stream, but also by hedging
both inflation and longevity risk. Recipients can initiate benefits between age 62 and 70. Starting
earlier provides immediate income but delaying from age 65 to 70 boosts benefits payments by 43%.
Social Security benefits retirees not only by prov ding a stable income stream, but also by hedging
h inflation and longevity risk. Recipients can initiate benefits between age 62 and 70. Starting
earlier provides immediate income but delaying from age 65 to 70 boosts benefits payments by 43%.
The models, scenarios and decisions included here are not based on any particular financial situation, or need, and are not
intended to be, and should not be construed as a forecast, research, investment advice or a recommendation for any specific
PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most
appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and
other investments. Investors should speak to their financial advisors regarding the investment mix that may be right for them
based on their financial situation and investment objectives.
The models, scenarios and decisions included here are not based on any particular financial situation, or need, and are not
intended to be, and should not be construed as a forecast, research, investment advice or a recommendation for any specific
PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most
appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and
other investments. Investors should speak to their financial advisors regarding the investment mix that may be right for them
based on their financial situation and investment objectives.
SPONSORED SECTION
The models, scenarios and decisions included here are not based on any particular financial situation, or need, and are not
intended to be, and should not be construed as a forecast, research, investment advice or a recommendation for any specific
PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most
appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and
other investments. Investors should speak to their financial advisors regarding the investment mix that may be right for them
based on their financial situation and investment objectives.
For additional details on methods and results, please s e our In Depth article, " Income for the
Retirement Years: A New Model for Seeking Stable Retirement Income. "
Based on our model, we conclu e that the mix of stocks and bonds one should hold at retirement
dep nds significantly on an individual's level of w alth and that the decision to annuitize is
relatively consistent across the wealth spectrum, albeit with differing allocations.
Co plications arise because each decision affects the others. The chosen asset allocation at
retirement, for instance, affects both the level and sustainability of income generated by their
investm nt portfolios. Social Security can be an excellent hedge against longevity risk, but delaying
benefits means a larger fraction of a client's investment portfolio may be needed for consumption in
the intervening years. This, in turn, may affect the asset allocation and whether to buy an annuity.
We provide a framework for answering these questions collectively. Our model seeks to optimize
decisions by aiming to generate the most stable and consistent income stream p ssible for a given
retiree's wealth and Social Security income. We illustrate the interrelationships among these
decisions in two hypothetical case studies - one for an individual with moderate income and low
wealth, and one for someone with high income and high wealth.
Income for the Retirement Years:
I Optimizing the Main Decisions

PLANSPONSOR - October/November 2018

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