But what a contrast between unlucky Phil and lucky Sally. Sally received inflation-adjusted income for 30 years plus she accumulated wealth of $2,600,000.

You may think this example is oversimplified. I ask you to trust me that it’s not. It’s powerful. I even authored a book about it, Lucky Retiree. If you use this example with prospects and clients, you will quickly see how effective it is. There is a data spreadsheet from which these results derive. I will be happy to share it with you. Just email [email protected] and ask for the Ten Retirees Spreadsheet.

Timing Risk And The Constrained Investor
When it comes to timing risk, it is vital that advisors protect constrained investors. But who exactly is a constrained investor? Let me share a simple framework that makes it easy to answer the question.

There are three segments of retiree investors:
• “Overfunded” investors
• “Underfunded” investors
•  Constrained investors

Overfunded investors are a lucky minority of clients whose level investable assets are more than is required to meet their targeted annual retirement income. Overfunded investors are sought after clients.

Underfunded investors have low balances and will rely primarily upon Social Security to provide their retirement income. Underfunded investors are not your ideal prospects.

Constrained investors represent a large and lucrative market segment. They make up the majority of people who have consistently saved for retirement. Constrained investors may have investable assets of up to $10 million, or even more. Commonly, however, they will have typically accumulated between $1,000,000 and $2,500,000. They are desirable clients.

The Income-To-Assets Ratio
To determine if you are working with a constrained investor, use the income-to-assets ratio:
Minimally Desirable Annual Income ÷ Investable Assets = %
≥ 3% = Constrained Investor

A client, call her Paula, has investable assets of $1,500,000 and a target monthly income of $6,000 ($72,000 annually). Using the income-to-assets ratio, we find that Paula’s 4.8% ratio indicates that she is a constrained investor.

$72,000 ÷ $1,500,000 = 4.8%. ( 4.8% is > 3%)

Priority one for the advisor designing Paula’s investment strategy is protection. It has to be safety first because Paula must be protected against timing risk. This would be true in all investment “seasons.” But today, with equity prices turning downward, inflation surging, interest rates climbing, the Fed signaling monetary tightening, and economic uncertainty increasing, an advisor’s failure to protect against timing risk is, in Paula’s case, cruel and unusual punishment. Fortunately, timing risk is one of the easiest risks to mitigate. Just setup the investing strategy in a manner that safe investments (no equity exposure) are providing Paula’s monthly income during the first 10 years of her retirement. Annuities are not required to manage timing risk. They are, however, the easiest way to lock down stability and safe, monthly income over this period.