Planning income for life involves a matrix of issues, many of which are unrelated to finance and investment strategies. Invariably, the crux of the problem hinges on how to get adequate cash flow out of an investment portfolio. At a time when a significant portion of the population is rapidly aging and our clients are facing ever-increasing risks to their long-term financial well-being, this problem is becoming far more difficult to solve. This chapter introduces the Evensky & Katz Cash Flow Reserve Strategy (E&K-S), first implemented by our firm more than a decade ago. The years have proved it to be an extraordinarily effective strategy.
To make the case for the E&K-S and to provide a framework for evaluating alternatives, I'll first address issues that need to be considered in the development and selection of an effective sustainable cash flow strategy. I'll also discuss some of the market myths that hinder effective cash flow planning.
Any strategy for generating cash flow must take into consideration the primary risk factors that can hobble an otherwise thoughtfully crafted solution. Once the risk factors are enunciated, practitioners have a set of criteria against which they may test proposed product and strategy solutions. The factors I recommend for consideration include several key risks and the client's unique needs.
Our clients' biggest economic ...