Page 13 - Investment Advisor - December 2023

videos and in an interview, when report- “Retirement is not binary. It is not
ing binary Monte Carlo results to a
client framed around probability of suc- success or failure. People adjust their
cess, anything less than 100% can sound
scary. For example, for a client with a spending, they adjust their lifestyles,
75% probability of success at a given
starting spending amount, failing one when [the] plan starts to go off course.”
out of every four times simply does not
sound acceptable to many people. —Jamie Hopkins
It is crucial, however, to think care-
fully about what a 75% success result when [the] plan starts to go off course.” doesn’t speak to the timing of failure.
in a Monte Carlo simulation actually So, as Estrada is asking, why would advi- “Did your portfolio run out of money
suggests. While this metric does project sors only make decisions about what the super early in retirement, like in year
that one in four retirement scenarios retirement strategy should be based on 15, which you would find unaccept-
will “fail,” the metric alone actually tells that outdated, binary notion? able?” Hopkins asked. “Or did it run
a client nothing about how severe that out of money in year 29 [of the 30-year
failure is. BUIldInG A Better InCoMe projection period]?”
“Now here’s the thing,” Hopkins APProACH These are two very different levels of
said. “Retirement is not binary. It is not In the paper, Estrada pushes on the failure. The other question is the magni-
success or failure. People adjust their idea that the failure rate taken alone tude of failure, which relates to the tim-
spending, they adjust their lifestyles, has two big flaws. The first is that it ing but is also a distinct consideration.

Working to make

retirement clear

for everyone.

SEEK CL ARIT Y AT JACKSON.COM

Jackson is the marketing name for Jackson Financial Inc., Jackson National Life Insurance Company (Home Office: Lansing, Michigan), and Jackson National Life Insurance
®
®
®
Company of New York (Home Office: Purchase, New York).
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December 2023 Investment AdvIsor 11