Your ebook outlines a strategy that you call a “lockbox.” Can you take us through it?
The idea is that you segment your money. It’s similar to using “buckets” but with a time component. A retiree might have a box for 2020 and a box for 2021, and 2022, etc.
The idea is that you segment your money. It’s similar to using “buckets” but with a time component. A retiree might have a box for 2020 and a box for 2021, and 2022, etc.
In each box, you have a combination of safe assets, such as an annuity or TIPS [Treasury inflation-protected securities], and a market-based portfolio, such as one with stocks and bonds.
You have the key if you need to access the funds, but the idea is that, once a year, you would sell the assets in that year’s lockbox. You put all your money in locked boxes to begin with, and you just happily open locked boxes
. If you’re dead, your partner opens the lockbox, and if you’re both dead, your estate opens all the lockboxes that are left.
How is this better than managing a single portfolio and withdrawing a certain percentage every year?
How is this better than managing a single portfolio and withdrawing a certain percentage every year?
The buy-and-hold aspect of the lockbox is better than the glide path [gradually changing the allocation of the overall portfolio], and that has to do with capital asset pricing.
With the traditional glide path, the money you’re going to have in 2030 is going to be a function of both how your portfolio did overall and the path it took to get there; there’s an added risk that’s not rewarded with higher expected returns.
Bottom line is that bucketing your assets in annual increments with different initial asset mixes in the lockboxes can provide a more efficient production of retirement income over time.
@threadreaderapp unroll, please
