Portfolio income in retirement a matter of luck: Otar

By Staff | April 4, 2013 | Last updated on April 4, 2013
1 min read

If your clients’ retirement portfolios are generating income, you may be surprised to learn it’s due mostly to luck. So argues retirement planning guru Jim Otar of Otar and Associates.

The author and creator of the Otar Retirement Calculator makes the claim in a white paper originally released in 2011 and revised on April 1. But this was no April Fool’s joke.

Highlights include:

  • Luck is made up of two components: sequence of returns and sequence of inflation. A few years of adverse sequence of returns and/or higher-than-average inflation can ruin forecasts with no recourse.
  • All other factors, such as asset allocation, alpha, portfolio costs, and rebalancing are much less important than conventional wisdom suggests.
  • Advisors’ main focus should be to determine the extent of the luck factor clients are exposed to and try to manage it with guaranteed income products, if necessary.
  • Using Monte Carlo simulators for modeling portfolio performance and cash flow can be detrimental for planning the distribution stage.

Read the paper here.

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Lifelong retirement income: The Zone Strategy

Perpetual distribution rates

Advisor.ca staff


The staff of Advisor.ca have been covering news for financial advisors since 1998.