Page 12 - Investment Advisor - December 2023

reTIremeNT/ANNuITIeS PlANNING

By John Manganaro

Jamie Hopkins: the ‘Fun’ new retirement

Planning Metric

“Success isn’t binary and neither is your retirement,” he says, summing up

the buzz around a new paper.

hile sustainable retirement-
income planning has always
W received both academic and
industry-driven analysis, a veritable
groundswell of innovative research is
being published on the subject. One
such example is a new paper published
in the fall edition of the Journal of
Financial Planning by Javier Estrada,
a financial advisor and professor of
finance at the IESE Business School
in Barcelona, Spain. The paper seeks
to answer a seemingly simple ques-
tion: “In retirement planning, is one
number enough?”
Specifically, Estrada is referring to
the “incidence of failure” metric that
dominates many advisors’ Monte Carlo-
based income planning efforts. Although
the paper includes some in-depth analy-
sis of the math and assumptions that
underpin this style of income planning,
Estrada’s answer can be summed up
with a simple “no.” He goes on to offer
his own key metric that he calls the
“risk-adjusted coverage ratio.”
The recently published paper is gen-
erating some buzz among U.S. finan-
cial advisors and retirement industry
thought leaders. This includes Bryn
Mawr Trust’s Jamie Hopkins. The risk-
adjusted coverage ratio is a “really fun”
metric to look into, he said recently in
a video posted to the social media plat-
form X, formerly Twitter. spending plan. One powerful means of tion, Hopkins says, and is pointing out
doing so is to introduce new metrics that that advisors have had too much focus
HoW Monte CArlo FAlls sHort help clients to understand the “mag- on one number when it comes to decid-
As Hopkins explained, Estrada’s paper nitude of failure” concept that is often ing what retirement strategy makes
shows how financial planners can do overlooked in traditional Monte Carlo sense — the failure rate of a portfolio
better for their clients by helping them simulations. in a traditional Monte Carlo simulation.
to optimize and regularly update their Estrada is asking an important ques- As Hopkins has explained in prior

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