• This methodology is the “Cadillac plan” for clients when:
  • An initial withdrawal rate of less than about 4.5% meets their cash flow objectives with minimal risk ,
  • The cash flow needs to keep pace with inflation,
  • They have a desire to pass on assets to heirs that will receive a stepped-up basis, and
  • They can tolerate the moderate investment risk of a prudently allocated investment portfolio.
• The portfolio offers liquidity/access to cash.
• This approach offers substantial flexibility.  Adjustments to cash flow can be made in response to changing client needs and market performance.
• If held as a personal asset versus in a tax-deferred account, capital gains are taxed only when realized (with long-term gains and qualified dividends typically at a favorable rate) and municipal bonds may enhance the net yield.

This approach is almost always optimal when life expectancy(ies) is/are short.

• Assets and cash flow are subject to greater investment risk (versus a fixed immediate annuity).  Some clients may get very anxious when stocks and/or bonds suffer losses, especially in early years.
• This strategy must presume possible versus average life expectancy, i.e., the plan must account for a longer life expectancy than a commercial annuity that is based on pooled averages.
• The approach is more complex and likely involves somewhat higher expenses and maintenance costs.