February 27, 2015 - As we approached Denver International Airport, the pilot came over the speaker and announced, “We are beginning our decent into Denver, flight attendants, please prepare for landing.” Not only were the passengers checked to make sure they were securely in their seats, but the aircraft itself began to make adjustments…..air flaps on the wings began to move, the air speed slowed down and finally the landing gear was lowered. Imagine if the plane tried to land without these critical adjustments. Not a pretty sight.

In my experience, most retirees sense that their investment “settings” need to change once they “land” in retirement, but I don’t feel that many know what changes are necessary, and few, if any, begin to make these adjustments as they approach retirement. The result, in many cases is a very bumpy landing and for some, a fatal crash.


 As an advisor, here are some interesting facts to consider for your clients entering retirement:

    • Many retirees have accumulated a high percentage of their retirement wealth in corporate qualified plans, i.e. 401k, 403b, cash balance and deferred compensation plans.
    • Most of these plans do not provide a strategy or mechanism to provide inflation adjusted income to the participant once they have retired.
    • In my 30 yrs. of advising retirees, I have not seen a single corporate plan that manages RMDs, once the retiree reaches 70 ½ yrs. old.
    • Most corporate plans have a “finite” selection of investment options that certainly do not offer the type of diversification that is available outside the plan. In other words, I can create a more diversified portfolio when I have the entire universe of investment options to choose from vs limited choices inside the corporate plan.

Conclusion.... the retiree may be better served by “rolling over” their corporate plan once they retire.

So far, we’ve only dealt with one issue at retirement… “to rollover or not to rollover”. But what should retirees be doing in preparation of the “rollover” event and what should they be rolling to. Let’s start with what they should be rolling to. Many believe that this is a product decision, when, in fact, it’s not. What retirees should be rolling their wealth into is not a product, but rather, a STRATEGY. A strategy that is grounded in the principles of TNT (not the explosive, although, not doing it right could certainly cause your investment portfolio to blow up).  In financial terms TNT denotes Time….Need….and Tolerance. That’s right, the proper assessment of their Time horizon, amount of income Needed, and their individual risk Tolerance will determine the strategy and products most appropriate for them.

If this is making sense then the IncomeConductor™ strategy developed by 3D Asset Management Inc. could be a logical choice for your clients’ rollover assets. But there is still one issue to deal with….preparing your portfolio for landing. Most pre-retirees leave their asset mix alone until the day they retire and then consider making changes. For those pre-retirees who were planning to retire in 2002, this proved to be a disastrous decision as they watched their portfolios plummet as much as 20%-40%*.  And we witnessed it again for those who were planning their retirement in 2009. As a result, many of them had to delay their dream of retiring for several years. Worse yet, those who retired in 2000 or 2008 and had no strategy to provide income other than systematically withdrawing from their overall portfolio found themselves returning to the work place or living on considerably less than they had planned. Neither situation was a smooth landing into retirement.

Simply stated,the IncomeConductor™ Model  is based upon the following assumptions:

    • Retirees need their income to increase with inflation;
    • In order to have growth in income, a portion of  their investments needs to be placed in growth asset classes;
    • Growth asset classes introduce volatility into their  portfolio;  but
    • the risk of losing principal in a growth oriented investment decreases with time.

Conclusion: The early years of your retirement (5-10 yrs.) should provide income from products that have guarantees and little or no stock market risk. The balance of the portfolio can be placed in diversified portfolios that are allowed to reinvest and safely “ride” the turbulence that the markets always bring. The result being a strategy that focuses on Reliability of Income rather than Return on Investment. Having the proper mix of guarantees and market opportunities provides the best opportunity for a smooth retirement.

What if your client is five years from retirement and wondering what to do? Now is the time to prepare their retirement portfolio for landing.  Immediately tighten the seat belt by allocating an amount of money to a fixed or stable value account that will be sufficient to meet your first 5 years of retirement.  That way, even if the market takes a normal downturn they can still retire in 5 years. While this secure account is providing them income when they begin retirement, the rest of their money can ride out the “storm” should there be one.  How the balance of the account is invested is determined by….you guessed it….TNT.

Finally, the last question to  ask your clients is…. “Do you need a professionally trained pilot or do you want to fly the plane Solo?”


*Ibbotson SBBI 2013 Classic Yearbook

Disclosure: The opinions herein are those of the author and are for information purposes only. A reader should consult with their investment advisor to determine the appropriate investment strategy based on the individual’s specific facts and circumstances. Further information on 3D Asset Management is available here