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“What use could this company make of an electric toy? [the telephone]”

“What use could this company make of an electric toy? [the telephone]” William Orton, President, Western Union. “I think there is a world for maybe five computers.” Thomas Watson, Chair IBM, 1943.

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“What use could this company make of an electric toy? [the telephone]”

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  1. “What use could this company make of an electric toy? [the telephone]” William Orton, President, Western Union “I think there is a world for maybe five computers.” Thomas Watson, Chair IBM, 1943 “We don’t like their sound and guitar music is on the way out” Decca Recording regarding the Beatles, 1962

  2. RETIREMENT INCOME PLANNING FOR TOMORROW THE NEXT “BIG THING”

  3. Walter Updegrave Deena Katz Mitch Anthony Lewis Walker Donald G. MacGregor Mitch Anthony Dr. Matthew Greenwald Jim C. Otar Prof. Cynthia Saltzman Robert Curtis April K. Caudill Prof. Moshe A. Milevsky Anna Abaimova Harold Evensky Prof. Laurence Booth William P. Bengen Robert Kreitler Lou Stanasolovich Roxanne Alexander Michael Anderson Douglas Head Prof. Roger G. Ibbotson Michael C. Henkel Peng Chen

  4. WHAT DO OUR CLIENTS WANT?

  5. HOW DO THEY PLAN ON GETTING THERE?

  6. THE SOPHISTICATES Leaping tall buildings in a single bound is nice but can you outperform the S&P index?

  7. THE MASSES

  8. ARE THEY “RATIONAL”?

  9. NO! Say, what’s a mountain goat doing way up here in a cloud bank?

  10. “Only 24% of Americans Fear Outliving Savings” Financial Advisor

  11. One baby boomer will turn 59 1/2 every seven seconds between 2005 and 2025.

  12. WHAT DOES THIS MEAN FOR REETIREMENT INCOME PLANNING?

  13. TROUBLE

  14. CASH FLOW STRATEGY: CLEARING THE HURDLES

  15. We must take into consideration the primary risk factors that can hobble an otherwise thoughtfully crafted solution. Once the risk factors are enunciated, practitioners have a set of criteria against which they may test proposed product and strategy solutions.

  16. MORTALITY REALITY LONGEVITY

  17. 78 81 86 86 85 93 88 91 91 91 96 Probability of a 65-year-old living to various ages 100% Male Female At least one spouse 75% 50% Probability 25% 0% 65 70 75 80 85 90 95 100 105 Age

  18. MORTALITY REALITY HEALTH

  19. Squaring The Curve Squared Health Status Perfect 10 8 6 4 2 Death 0 0 10 20 30 40 50 60 70 80 90 100 AGE Traditional

  20. MORTALITY REALITY INFLATION

  21. Unanticipated inflation is a greater risk factor for the retired than it is for the rest of the population The CPI-E (for the elderly), the retiree inflation index outpaced the regular CPI during the last 20 years by almost 1% per year.

  22. MORTALITY REALITY VOLATILITY & LUCK

  23. 90% “FOR SURE” MONTE CARLO TO THE RESCUE

  24. THE TRADITIONAL SOLUTION

  25. THE “INCOME” PORTFOLIO

  26. MYTH I’m Retired so I need... Dividends and Interest The paycheck syndrome

  27. CASH FLOW vs. REAL INCOME

  28. REAL NOMINAL

  29. “EXCESS”ANNUAL CASH FLOW Fidelity Intermediate Bond “INCOME PORTFOLIO” I’m rich! Fidelity Intermediate & Vanguard S&P “TOTAL RETURN” I’m poor!

  30. PORTFOLIO VALUE “TOTAL RETURN” “INCOME PORTFOLIO”

  31. CLIENT NEEDSAn effective strategy must meet our clients' Financial and Behavioral Needs.

  32. Cash flow (as from total-return portfolios) vs. Income (as in dividends and interest) Consistent cash flow Real cash flow • Tax and expense efficiency CLIENT NEEDS - FINANCIAL

  33. CLIENT NEEDS - BEHAVIORAL Paychecks are consistent Paychecks are market independent The source of paychecks is visible and considered reliable Clients understand paychecks; they need to understand their cash flow strategy Separate pockets.

  34. SUCCESSFUL INVESTORS DO NOT AVOID RISK, THEY MANAGE IT!

  35. THE E&K CASH FLOW STRATEGY

  36. BREAKING THE PAYCHECK SYNDROME

  37. CASH FLOW RESERVE THE TOTAL PORTFOLIO THE INVESTMENT PORTFOLIO

  38. 2 YEARS CASH FLOW 5 YEARS LUMP SUM CASH FLOW RESERVE BALANCE OF PORTFOLIO REINVESTMENT OF ALL INTEREST & DIVIDENDS ADJUSTED AS NECESSARY FOR OPPORTUNITY COSTS THE INVESTMENT PORTFOLIO

  39. CASH FLOW RESERVE Rebalance Refill THE INVESTMENT PORTFOLIO Regular Monthly Payments the “PAY CHECK” PERSONAL CHECKING ACCOUNT

  40. DOES IT ADDRESS THE CLIENT’S NEEDS?

  41. As the reserve requirement is reviewed regularly (in our practice the review is quarterly), it’s quite easy to increase the reserves to adjust for inflation. The strategy also provides the flexibility to increase the reserve by variable amounts to reflect an inflation factor unique to each client. Purchasing Power Risk

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