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Morningstar’s recent report on retirement income planning titled “Alpha, Beta, and Now…Gamma” suggests that “…making more intelligent financial-planning decisions can result in an annual return increase of 1.82% – an amount the report characterizes as a ‘significant improvement in portfolio efficiency for a retiree’.”

Here are excerpts from the report’s abstract:

“We estimate a retiree can expect to generate 29% more income on a “utility-adjusted” basis using a Gamma-efficient retirement income strategy when compared to our base scenario.” And, “Unlike traditional alpha, which can be hard to predict, we find that Gamma (and Gamma equivalent alpha) can be achieved by anyone (emphasis added) following an efficient financial planning strategy.”

I question whether the favorable results can be “achieved by anyone” without an advanced degree in mathematics.

The Savings2Income (S2I) planning method in contrast was developed as a “plain talk” approach to improving retirement income that is understandable by and transparent to the less experienced advisor and investor. Under the S2I approach, the improvement in results (retirement calculator) comes from the following:

1. “F” stands for fees – reducing overall product and advisor fees improves returns on retirement savings dollar for dollar (a .50% reduction in fees improves returns by .50%).
2. “FPA” stands for “fixed payout annuity” – integrating FPAs into the product allocation provides a perfect match for the income risk being addressed in a plan for retirement income. (Incidentally, FPAs typically have internal crediting rates that are more than competitive with fixed income investments that are not so perfectly matched.)
3. “T” stands for “taxes” – deferring taxes for as long as possible creates significant increases in long term after tax income.

These elements under the control of the advisor or investor, together with the S2I planning method (which also addresses Social Security claiming decisions as well as the build-up of Guaranteed Income over time) produces increases in returns competitive with the Gamma phenomenon. (Future blogs based on our own research will quantify the sources of S2I improvement.)

Most importantly, S2I’s 5 Steps to Retirement Security doesn’t require a degree in advanced mathematics. You can see for yourself how this applies to your situation in plain English by visiting Savings2Income.com.

Jerry Golden Founder of www.Savings2Income.com and CEO of GoldenRetirement.com
convert your retirement savings into dependable, spendable income

I usually wouldn’t comment on an advertorial, but “Converting Retirement Savings to Retirement Income” by Randy Myers, in the Special Advertising Section, Wealth Management (Wall Street Journal, September 18, 2012) caught my attention.

Having unveiled our Saving2Income planning method and launched the Savings2Income.com website on that same day, we clearly support effective ways to convert retirement savings into retirement income.

However, that’s about all we agree with.

Here’s where the Saving2Income (S2I) planning method differs from the approach outlined in the advertorial:

1. Converting savings to income is not about financial products but rather about a process or a planning method.
2. Under the S2I planning method, all retirement savings, including Personal Retirement Savings held outside a 401(k), IRA, and Social Security, must be accounted for and integrated into the solution.
3. A key part of the process is deferring and controlling taxes, particularly since through product selection and planning it’s under the control of the advisor and client.
4. Similarly, lowering fees and loads on the retirement savings are absolutely critical in the process. This is not mentioned in the advertorial.
5. Guaranteed income can best be provided by fixed payout annuities built up in stages over time, rather than through a lump sum purchase. By selecting from among a wide variety of fixed payout annuities and the life insurance companies that offer them, the client can have access to commutation values (the present value of future benefits). Also, there are a wide variety of options to protect the beneficiary in case of early death of the retiree.
6. Any solution must complete itself by what we call a “no worry age”, rather than depending on the active management for life by the advisor and client. And yes, the advisor could retire or pre-decease the client who might not have full capacity at that point.

Having invented the original Living Benefit Guarantee design for Variable Annuities in 1995, I should take pride in the prominent mention of the successor designs in this advertorial. However, there is no magic bullet with these designs, and the inherent complexity and costs often defeat their value in a plan for retirement Income. And transparency and flexibility have to be part of any plan.

We agree there’s a need for a Savings to Income approach. We just don’t agree that the advertorial actually lives up to its title.

Jerry Golden Founder of www.Savings2Income.com and CEO of GoldenRetirement.com
convert your retirement savings into dependable, spendable income

Generates Dependable, Spendable Retirement Income for Life

Millions of Baby Boomers are on the verge of retirement and many don’t know how to ensure that their savings will last a lifetime. Now there’s an innovative solution: Savings2Income.

Savings2Income (“S2I”) is a new planning method that builds a reliable income stream for current and future retirees. S2I uses proprietary software to calculate how best to accumulate guaranteed retirement income over time. The goal is to create enough dependable, spendable income to meet or exceed an investor’s essential expenses without incurring additional risk.

The website retirement income explains the S2I planning method, and includes Case Studies which provide examples of how the S2I planning method would work for an investor’s full retirement savings and income situation. The website also offers a 3 minute retirement calculator that illustrates the advantages of the S2I planning method when applied to non-qualified savings, or what S2I refers to as Personal Retirement Savings. The results show an average improvement in after-tax retirement income of 42%.

This program will appeal to Baby Boomer investors, ages 50 to 70, who are saving for or just entering retirement. S2I focuses on the underserved middle market and mass affluent, whose retirement savings have been hit hardest in the current economy.

The S2I plan offers a comprehensive five-step approach that:

1. Lowers fees on all retirement savings
2. Defers taxes on retirement savings for as long as possible
3. Maximizes Social Security benefits
4. Builds up guaranteed income over time
5. Converts savings to a steady stream of lifetime income

The combination of stock market volatility and record-low interest rates creates a challenging environment for retirees searching for secure income. S2I is an appropriate solution to meet their needs. The 5 Steps Video explains this process in a consumer friendly step-by-step way.

During the accumulation phase of an S2I plan, retirement savings grow tax-deferred and benefit from low fees. As the retiree transitions from the saving-to-spending phase of life, the S2I planning method seamlessly converts savings into dependable, spendable after-tax income.

The initial amount of retirement income is set and then adjusted periodically, typically every five years, to meet any expected expenses. Budgets may have to be adjusted to reflect changing situations, and the S2I planning method is flexible enough to do that.

Best of all, using the S2I planning method means retirement income is not dependent on market returns or interest rates during each payout period. Income is taxed when received and the balance of retirement savings continues to grow tax-deferred. Retirement income is deposited directly into the individual’s checking account each month.

After a “no worry age” (typically life expectancy) is reached, active investment management is no longer required and guaranteed income is paid to the investor for the rest of his or her life.

The S2I planning method is now available through Golden Retirement Advisors and will be available through independent advisors starting in the fall.

Golden Retirement LLC was founded by me to create innovative financial products and services focused on the wealth accumulation and retirement income needs of broad segments of the U.S. population. The company has sponsored the Savings2Income website and is launching its own registered investment advisor, Golden Retirement Advisors.