To explain decumulation to clients, ask them to picture a house, says consultant Don Ezra.
MoneySense reports that Ezra showed a meeting of the Decumulation Institute a drawing of a home, made of a basement, three floors and an attic. The way he labeled each story could be useful to your clients.
The basement is pre-annuitized wealth, such as defined benefit or government pensions. Ezra calls the ground floor the essentials zone, which is wealth used on daily necessities. Essentials are often founded by government or other defined-benefit pensions.
The second floor is the lifestyle zone, which is discretionary spending, reports MoneySense. Items on this story include travel and entertainment, and could be funded by defined contribution plans.
For the next three zones, read more at MoneySense.
Advisor senior editor Dean DiSpalatro has spoken to Ezra about decumulation for an article on structuring drawdown portfolios.
Ezra uses a case study to show that clients have two options when their starting asset base doesn’t cover planned spending: change goals or elevate risk.
He suggests advisors adopt a similar approach when clients’ drawdown plans are too lofty for their risk profiles.
Read more here.
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