What I set up for retired clients is not only portfolio management (all advisers do that – what is missing is how to monitor, measure, and decide what to do when “things happen”). Portfolio management for my retired clients would be represented in the above photo as the Long Term Portfolio (LTP). That represents potential income over your lifetime. If could all be spent at once in one year, or spread out over the rest of your lifetime – the retiree’s spending decisions they make.
My distribution monitoring process begins with the monthly amount transferred each month to your checking account. That forms the basis for all the other calculations which serve as decision rules and portfolio value points where certain decisions are made … the relief comes to retirees when they understand that regardless of what the market or economy does, they don’t need to worry until we approach a pre-established decision point. Before then, everything is simply noise.
The Distribution Reservoir Portfolio (DRP) is a separate portfolio with less volatile short term investments and cash that serves as a buffer and reservoir to allow for about 3 years of spending. This gives a buffer zone to provide time to see, and adjust, things based on the decision point you might have reached as discussed above.
Under the Hour Consultation method, I would set up this structure and do the calculations for the decision rule points. I would also do the calculations for the quarterly transfers from the LTP to the DRP to keep the DRP full so it is at full capacity to weather storms like 2008. (PS. None of my retired clients on this system called me in panic in 2008 because we had the system and rules already in place to manage it – what I call emergency procedures; also “Process is Important”).
The quarterly transfers also consider rebalancing the LTP towards to target allocation so we keep it in balance according to your risk preferences. The refill also re-balances the DRP since you are taking cash each month from it which would make that portfolio riskier too without rebalancing. My point is, I would make the calculations, but you would need to instruct your fund company to make the sales and purchases to keep the process properly allocated and the funds flowing consistently through the structured process. This is structure with supporting decision rules is important to properly monitor prudent spending each year.
Under the Asset Management method, the entire structure is set up to work automatically for you and is managed by my back office. You are free to spend your time on your interests and life while the process runs for you in the back ground. I would continue to work with you on decisions and calculations – you never give up the decision making because, under either method you are the boss. My role in either case is to offer insight and guidance to help make those decisions – especially in times like 2008.
I hope this gives you more insight into the differences between either method of working with me. I’m fine working with people with either method – as long as they understand who does what.