It wasn’t too long ago that rules-of-thumb dominated retirement planning and retirement income management. “Save 10 percent of your pay;” “Don’t spend more than 4 percent of your assets each year;” and “Your fixed income allocation’s percentage should equal your age” are well-known examples.
Some of these adages have held up well and investors who followed them suffered no harm. But as the boomers and their money aged, advisors and academics began to generate research that brought additional rigor and insight to retirement planning and retirement income management. We also saw the emergence of competing approaches to retirement income planning, typically grouped as the drawdown or systematic withdrawal method, the bucket approach, and flooring (also known as the essential versus discretionary expense approach).
Michael J. Zwecher’s book, “Retirement Portfolios: Theory, Construction, and Management” (Wiley Finance, 2010), is an example of a book that links the academic underpinnings of retirement planning with the practical aspects of managing client portfolios. If you use the flooring approach or want to learn more about it, he builds a solid case for adopting that method and also advises on its implementation with clients.