Tomlinson on hard retirements

From The Best Strategy for Retiring Without Adequate Savings. Joe Tomlinson, AdvisorPerspectives

• "Most research on retirement strategies assumes that people have saved adequately. But data on household savings shows that many households fall short, and will need to call on relatives or other sources for support. This raises questions about the best withdrawal or annuity strategies when savings are insufficient. It turns out that which strategy works best is different than for adequately funded retirements. 

• ...unlike most retirement research where we look for ideal solutions, here we will try to find the “least-bad” alternative. I’ll assume that retirement shortfalls will need to be funded by relatives. This will broaden our focus beyond the retiree, since we need to evaluate financial consequences for the contributing relatives." 

• "The lowest-risk 5th percentile balance is at 25% stocks and the additional risk from increasing the stock allocation is somewhat more severe. However, the risk at 75% stocks is not dramatically greater than at 25%, so a heavy stock allocation still makes sense, although going all the way to 100% may be too chancy." 

• "If the 5th percentile numbers based on stock/bond mixes cause too much concern, a possible strategy is to accept defeat and purchase an inflation-adjusted SPIA. In this case the relatives would pay a monthly or annual allowance to make up the shortfall...The result would be a sure loss for the relatives, but more predictable than using stock/bond mixes...The SPIA strategy clearly wins out over a conservative strategy with a heavy bond allocation, but compared to utilizing a heavy stock allocation, there is more of a risk/reward tradeoff. "