Base Contingency Discretionary Legacy Retirement Decision Making Retirement Income

“Why Advisors Should Distinguish Base and Discretionary Expenses” by MRT Team in Advisor Perspectives


“The difference between base (mandatory or essential) and discretionary (voluntary or non- essential) expenses in retirement is fundamental and consequential. Properly making this distinction may be the most important decision in order to use assets efficiently and effectively in retirement income planning. Some advisors fail to highlight the difference between expense categories and claim that clients do not see food, shelter or insurance differently than country club dues or vacation cruises. Hence the expense categories are combined and called lifestyle expenses.
This is a distortion of affluence.”

The MRT team’s article on Base Fund were recently published by Advisor Perspectives.

Annuities Base Bond Ladders Conditions within Longevity Individual Retirement Planning Liability-driven Investing Longevity Pensions Portfolio Theory Retirement Decision Making Retirement Income Social Security

3-S Income for Retirement

The MRT team’s article titled “Crafting Retirement Income that is Stable, Secure, and Sustainable” is now available in the December issue of the Journal of Financial Planning. MRT defines retirement income planning through the 3-S Income model (stable, secure, sustainable).

Individual Retirement Planning Liability-driven Investing Pensions Retirement Decision Making Retirement Income

Forbes: 8 Essential Principles Of Planning For Retirement (Part 3)

Forbes: 8 Essential Principles Of Planning For Retirement (Part 3)

by Wade Pfau, Ph.D.

A retirement plan involves more than just finances. Rather than beginning at your savings, the starting point for building a retirement income strategy should be the household balance sheet. This fundamental lesson has been proven several in various retirement frameworks, including Modern Retirement Theory, the Funded Ratio approach, and the Household Balance Sheet view.

At the core of these different methodologies is a desire to treat the household retirement problem the same way pension funds treat their obligations.

Assets should be matched to liabilities with comparable levels of risk. This matching can either be done on a balance sheet level, using the present values of asset and liability streams, or it can be accomplished on a period-by-period basis to match assets to ongoing spending needs.

Structuring the retirement income problem this way makes it easier to keep track of and to make sure each liability has a funding source. This also allows you to more easily determine whether you have sufficient assets to meet your retirement needs, or if you may be underfunded.

This organizational framework also serves as a foundation for choosing an appropriate asset allocation and seeing clearly how different retirement income tools fit into an overall plan.

The following table provides a basic overview of potential assets and liabilities a household balance sheet should consider.