You now have a Retirement Sustainability Quotient (RSQ) number. It could be 45, 78, 94 (touchdown!). But what does it mean, and what do you do with it? What is a good number? What is a bad number? The way to think about measuring the sustainability of your retirement using the RSQ brings us back to considering your odds.
In our view, unless there’s only a 5 percent chance of rain, we strongly believe in bringing an umbrella with you on your journey through retirement. That is, unless your RSQ is 95 percent or above, we recommend an umbrella to protect you from fickle markets, the sequence of returns, unpredictable inflation storms, and uncompensated longevity risk—and the umbrella we recommend is product allocation. If you want to be protected in all kinds of weather, then allocate your investable assets (your nest egg) among different investment products to increase your RSQ.
After you’ve calculated your RSQ—which is Step 5 in the process of pensionizing your nest egg (see Exhibit 17.1)—where do we go next? It depends on your RSQ. If your RSQ is already above 90 or 95, you are pretty much done. There is no need for you to use product allocation to increase the sustainability of your retirement income. You have a pension gap, but your RSQ is sufficiently high that you don’t need to take any further steps to secure your retirement income for life. You do, however, need to double-check your inflation and tax assumptions.