Retirement Floor And Upside How To Calculate Floor

The floor and upside strategy for financing retirement is sometimes referred to as safety first and derives from the theory of life cycle saving and investing 1.

Retirement floor and upside how to calculate floor.

That the fundamental goal of retirement income planning is to first build a floor then expose to upside the riia s goal can be reconciled with the fpa s categories by remaining aware about the potential flooring available with current retirement assets. First i will explain what a utility function is why it is important and what floor and upside utility functions look like. This highlights that there are two ways to think about retirement income flooring. But the floor is just one component of the investing strategy.

View your retirement savings balance and calculate your withdrawals for each year. 1 conceptually commit some portion of assets to an income floor 2 for simulation purposes zero out that portion of assets and convert it into an at risk income stream that grows at some rate 3 3 allocate any excess assets 100 to an upside risk portfolio as a long term. We will explore the optimal investment. I started by reviewing the risks to a distribution portfolio.

The basic idea behind floor and upside is that a retiree devotes some of her retirement funding assets to building a lifetime stream of income and the remainder to an investment portfolio to provide liquidity and the. The companion component is the search for upside through exposure to risky assets such as equities. At the same time the retirement income industry association riia argues that the fundamental goal of retirement income planning is to first build a floor then expose to upside the riia s goal can be reconciled with the fpa s categories by remaining aware about the potential flooring available with current retirement assets. Social security is calculated on a sliding scale.

So that is a non technical overview of how to establish a retirement income floor while keeping an upside. Then using a floor and upside utility function i will cover how to compute the optimal investment strategy despite the uncertainties that exist. And finally the fun part of the talk. Riia has also created a client segmentation matrix that advisors can use to identify which investors need a floor as part of their retirement income investing.

The floor plus upside strategy of planning for retirement is a strategy espoused by retirement income industry association founder francois gadenne and it follows a very basic premise but one that after seeing the worry in the faces of many middle americans makes a lot of sense. Then i discussed the options for additional income in early versus late retirement. The basic idea was this for someone with the asset capacity to be able to execute a floor and upside strategy.