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Income for the Retirement Years: Optimizing the Main Decisions in Retirement
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Financial advisors and their clients planning for retirement must navigate a set of intricate and inter related decisions. When’s the best age to start taking Social Security benefits? How should assets be allocated? Does an annuity make sense? These decisions are complicated enough in isolation. But when they’re addressed together, they grow exponentially more complex.
We provide a framework for answering these questions collectively. Our model seeks to optimize decisions by aiming to generate the most stable and consistent income stream possible for a given retiree’s wealth and Social Security income. We illustrate the inter relationships among these decisions in two hypothetical case studies – one for an individual with moderate income and low wealth, and one for someone with high income and high wealth.
Based on our model, we conclude that the mix of stocks and bonds one should hold at retirement depends significantly on an individual’s level of wealth and that the decision to annuitize is relatively consistent across the wealth spectrum, albeit with differing allocations.
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