algorithms, intellectual property andeconomic strategies to extend the longevity of portfolios. For 30 years, hehas been training students and advisorsalike on new ideas, new directions andnew products in the retirement, anddecumulation, arena.
RETIREMENT PLANNING VS.
Drawing down wealth and retiring from
the workforce are two dif-
ferent events that take place
explains. Economists have
finally realized two things:
People don’t necessarily retire
all at once, and many people
“don’t hate work as much
as economists might think,
because some of us derive
social engagement from it,” he
told Investment Advisor. “We
like seeing people outside our family, as
COVID has taught us, and we actually
like what we do.”
In short, decision-making on how
and when to retire is a “a sociologi-
cal/psychological problem” that is
more complicated than it might seem.
A financial advisor, particularly a young
one, trying to counsel a retiree on life-
style issues may come off as “vacuous,”
Instead, he says, advisors need to
“stick to their knitting” and “draw a
line around what they have expertise
in and get better at that, and vice versa.
[They should] partner with profession-
als in related fields to deal with these
Decumulation, for its part, is a math-
ematical problem — a process far more
complex than the process of saving and
investing for retirement, he says — it’s
“the process of figuring out how much
to take out of my accounts every year
and which accounts I should take them
from in the most tax-efficient manner.”
This has several facets: Should the
money be pulled from Roth IRAs or
taxable accounts? When should a cli-
ent claim Social Security or take their
pension early? Should a 401(k) be rolled
into an IRA or be kept in the plan? What
4% RULE IS A GOOD START
For decumulation, advisors need “apowerful, robust dashboard to helpthem with this complex problem; it’sno different than building portfolios,”Milevsky explains.
In the old days, he says, brokerswould recommend stocks. Then theyrealized they couldn’t build portfoliosone stock at a time so began to studyasset classes, correlation structuresand historical returns as they moved toasset allocation.
“It’s become a much more quantitative and certainly a much more sophisticated process,” he said. He pointsout that the 4% withdrawal rule “is agreat conversation starter” and a goodway to educate a client. But it doesn’tstop there.
CHARGE MORE FOR
“[Decumulation is] an expensive and
elaborate process,” he explains. “It takes
time. It’s more complex, time consum-
ing, and who is going to compensate the
financial advisor for this time-consum-
The answer isn’t “a minimum trail fee
or [being] paid on some small fraction of
assets,” he says. After all, “people want
to get paid for their time. You have to
pay more for decumulation advice than
accumulation advice. So prepare clients
who have become accustomed to pay-
ing very little for accumulation advice,
that decumulation advice is a lot more
expensive. … That’s why you don’t want
to call it retirement planning.”
This also means, he adds, that robo-
advisors will face challenges in this
phase as decumulation has to
be more tailored and unique
to the individual. “So I’m
preparing the masses as they
age,” he says. “It’s going to be
more expensive to get guid-
ance, and rightfully so.”
WATCH INTEREST RATESWe also asked the financeprofessor what he thoughtabout the aging bull market.
“Nothing shocks me anymore,” he saidof stocks’ recent trajectory, but he didrecommend that advisors keep their eyeon long-term interest rates.
“Interest rates are at such low levelsand all assets are appreciating becauseincome is becoming more expensive,”he said. “If you’re looking for a prediction, keep your eye on the long-termbond market. That’s going to becomethe bellwether. When long-term interest rates start to head up, that’s not goodfor a lot of things, which is why the Fedis working so hard to keep that numberdown. If six months from now we’re stillat 2%, 1.5%, then yeah, this bull marketwill continue. But if suddenly that number increases quickly, then I’ll becomevery bearish.”
Washington Bureau Chief Melanie Waddellcan be reached at firstname.lastname@example.org. JanetLevaux is editor-in-chief of InvestmentAdvisor. She can be reached at email@example.com. Ginger Szala is managing editorof Investment Advisor Group. She can bereached at firstname.lastname@example.org.
Decumulation, for its part, is
a mathematical problem —
a process far more complex
than the process of saving
and investing for retirement,