Paul Byron Hill, CFP walks investors through wealth preservation for income withdrawals

Wealth Preservationfor Income Withdrawals

Presenter: Paul Byron Hill, CFPClick icon to add picture

Agenda

1. A Major Concern for Planning2. Comparing Withdrawal

Strategies3. The Perils of Investor Behavior4. A Tale of Two Engineers5. Seven Deadly (Investor) Sins6. Solution: Wealth Management

We help successful people make informed decisions about wealth for planning major concerns.

A major concern when deciding how much to withdraw in retirement is preserving wealth: not running out of money

Retirement Withdrawal Strategies

For institutional investor use only. Should not be distributed to investors of products managed by Dimensional Fund Advisors Inc. or potential investors. Dimensional Fund Advisors Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors Inc. collect at (310) 395-8005; on the Internet at www.dfaus.com; or, by mail, DFA Securities Inc., c/o Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401. Dimensional funds distributed by DFA Securities Inc. Performance data represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original

cost. To obtain performance data current to the most recent month-end, access our website at www.dimensional.com. Average annual total returns include reinvestment of dividends and capital gains .

Annual: January 1, 1990 - December 31, 2012

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LT1330.9

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

100% T-Bills 50% Balanced 100% US Equity

$40,000 (4% real $) per year

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000


$50,000 (5% real$) per year

$60,000 (6% real $) per year

19

90

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91

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$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000


Preserving $1 Million in Bad Times

For institutional investor use only. Should not be distributed to investors of products managed by Dimensional Fund Advisors Inc. or potential investors. Dimensional Fund Advisors Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors Inc. collect at (310) 395-8005; on the Internet at www.dfaus.com; or, by mail, DFA Securities Inc., c/o Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401. Dimensional funds distributed by DFA Securities Inc. Performance data represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, access our website at www.dimensional.com. Average annual total returns include reinvestment of dividends and capital gains .

Annual: January 1, 2000 - December 31, 2012

5

LT1330.9

$40,000 per year (4% real $)

$50,000 per year (5% real $)

$60,000 per year (6% real $) 2

00

0

20

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20

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20

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$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

100% US Equity 50% Balanced 100% Fixed

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00

20

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20

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$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000


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20

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20

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$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000


6

11.2%

2.5%2.7%

8.4%

6.5%

8.2%

8.1%

6.3%

Returns Reduced by Investor Decisions 20-Year Annualized Returns (1993-2012)

2.3%

Source: J.P. Morgan Asset Management

7

Investor Decisions Follow Emotions

Optimism

Elation

Fear

Optimism

Nervousness

Market CycleHigher Prices

Lower Prices

People may struggle to separate their emotions from their investment decisions.

Following a reactive cycle of excessive optimism and fear may lead to poor decisions at the worst times.

Performance of the S&P 500 Index

Performance data for January 1970-August 2008 provided by CRSP; performance data for September 2008-December 2012 provided by Bloomberg. The S&P data are provided by Standard & Poor’s Index Services Group. US bonds and bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. This publication is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. Past performance is not a guarantee of future results. Unauthorized copying, reproducing, duplicating, or transmitting of this material is prohibited. Date of first use: June 1, 2006.

Daily: January 1, 1970-December 31, 2012

8

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Total Period Missed 1 Best Day

Missed 5 Best Single Days



One-Month US T-Bills

Annualized Compound Return 9.94% 9.66% 8.84% 7.47% 6.33% 5.30%

• The best single day was October 13, 2008.

• The best one-month return, October 1974, happened immediately after the second-worst one-year period.

• The occurrence of strongly positive returns has been especially unpredictable. Investors attempting to wait out an apparent downturn ran a high risk of missing these best periods.

• 8 of the top 25 days occurred between September 2008 and February 2009, during which time the S&P dropped 41.8%

• 5 of the Top 10 days occurred between October 2008 and November 2008, during which time, the S&P 500 dropped 22.8%.

Day Month 3 Months Ending

6 Months Ending

12 Months Ending

10/13/08 10/74 10/82 6/75 6/83

10/19/87 10/87 11/08 2/09 2/09 Worst Periods and the Return If Missed

Best Periods and the Return If Missed

Best/Worst Missed Period

Total Period

9.66% 9.55% 9.33% 9.05% 8.73%

11.40%11.33%10.84%10.56%10.49%9.94%

Annualiz

ed

Com

pound

Retu

rns

%

Performance of the S&P 500 Index

Time periods greater than one month are based on monthly rolling periods, and dates indicated are end of period.The S&P data are provided by Standard & Poor’s Index Services Group. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. This publication is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. Past performance is not a guarantee of future results. Unauthorized copying, reproducing, duplicating, or transmitting of this material is prohibited. Date of first use: June 1, 2006.

Daily: January 1, 1970 - December 31, 2012

The Tale of Two EngineersPeriod: January 1, 2001 – December 31,2012

Source: Advent from custodial data. Simulated Dimensional models and returns for benchmarking fully described in Wealth Management Plan Part 2 and Planning Perspectives for 3Q2012. Vanguard allocations follow Exhibit 2, except Vanguard Benchmark E50 follows Professional Financial 50% equity benchmark with Vanguard substitutions: 25% VTSMX, 25% VGTSX, 40% VBIIX, 10% VBISX. Dimensional 50% equity simulation linked to live client data to incorporate period client could have invested with Professional Financial, but invested through Fidelity Investments. Vanguard model is correctly adjusted to 40% equity after November 2008, but assumes a consistent 60% equity allocation prior to that time. All simulated strategy performance information is based on performance of indexes with model/back tested asset strategies; the performance may have been achieved with the benefit of hindsight; it does not represent actual investment strategies. Indexes are not available for direct investing. Provided for educational purposes only.

($609,260)

Net Contribution Additions: $187,036$1,000,00

0

$2,406,112

Abel 40% Equity -> 50% Equity only 1 year

($443,566)

Contribution Adjustment: NA

$1,007,385

$1,310,758

Bill 50% Equity -> 40% Equity last 4 years

Net Increase:

$1,828,336

Net Increase:

$746,939

The Tale of Two EngineersPeriod: January 1, 2001 – December 31,2012

Source: Advent from custodial data. Simulated Dimensional models and returns for benchmarking fully described in Wealth Management Plan Part 2 and Planning Perspectives for 3Q2012. Vanguard allocations follow Exhibit 2, except Vanguard Benchmark E50 follows Professional Financial 50% equity benchmark with Vanguard substitutions: 25% VTSMX, 25% VGTSX, 40% VBIIX, 10% VBISX. Dimensional 50% equity simulation linked to live client data to incorporate period client could have invested with Professional Financial, but invested through Fidelity Investments. Vanguard model is correctly adjusted to 40% equity after November 2008, but assumes a consistent 60% equity allocation prior to that time. All simulated strategy performance information is based on performance of indexes with model/back tested asset strategies; the performance may have been achieved with the benefit of hindsight; it does not represent actual investment strategies. Indexes are not available for direct investing. Provided for educational purposes only.

($443,556)

Contribution Adjustment:$0

$1,007,000

$972,372

Index Marketer

50% Equity -> 40% Equity in 4 years

Net Increase:

$408,928

The Seven Deadly (Investor) Sins

Gluttony: Live for Today, Undecided about a Plan

What is the problem?

Not saving seriously for realistic lifestyle after retirement

Increases spending after retirement by focus on today

What is the solution?

Disciplined living in a budget—before and after retirement

Planning ahead for informed decisions, avoiding excessive debt

Anger/Wrath: Hate Results of Unplanned Decisions


Stubborn, denial of past mistakes (“aversion to regret”)

Lessons unlearned due to blaming others for uninformed decisions


Have a professional investment plan with a disciplined process

Avoid emotional choices by relying on advisor to execute as needed

Sloth: Avoiding Regular Planning Decisions


Set and Forget – disorganized accounts and lack of accounting

Expenses tend to be high, investment resources become wasted


Have a planning process with regular professional reviews

Work with professional for “heavy lifting” of regular reviews

Lust: Love to Neglect Planning Decisions


Love of money, almost emotional attachment

Avoids risks that may lose money

Sells too soon to avoid losing or losing gains


Create professional investment plan with disciplined process

Look at accounts only during scheduled regular reviews

Greed: Deciding to be Rich rather than to Plan


Return myopia—focus on making more

Performance chasing drives decisions

Lottery mentality, overweighing low probability of success


Have planning process targeting outcomes, not returns

Comprehensive process to avoid decisions focused on short-term

Pride: Overconfidence in Making Decisions


Know it all—but don’t know what don’t know

Excessive belief in personal smarts due to success elsewhere


Discover humility—identify mistakes and their (opportunity) cost

Commit to a comprehensive planning process and stay disciplined

Envy: Deciding by Wanting What Others Have


Wants it all now, and show it off: glamour stocks, hedge funds

A lottery mentality seeking “winners” for bragging rights


No advisory solution for those with an advanced condition

Have a separate portfolio to preserve some wealth after blow up

Solution

Deciding on principles and process-driven planning

The Wealth Management Consultative Process

WM = IC + AP + RM

Five Major Concerns of Successful Families

The Wealth Management Consultative Process

INVESTMENT PLAN AND IPS

Diagnostic of current situation, our recommendations for moving

forward and details on our investing approach

THE PROFESSIONAL NETWORK

Team of carefully selected professionals, each with a high level of knowledge and skill in

key financial areas

PROFESSIONAL NETWORK MEETING

Our team of specialists applies its expertise to evaluate all aspects of your

financial situation and devise appropriate solutions

Two weeks

One week

45 days

90 days

THE ADVANCED PLAN

Comprehensive evaluation of the entire range of financial needs with

our recommendations for moving forward

INVESTMENT PLAN MEETING

Presentation of investment plan

MUTUAL COMMITMENT

MEETING

Confirmation of commitment

45-DAY FOLLOW-UP MEETING

Organization of account paperwork

REGULAR PROGRESS MEETINGS

Review of progress and implementation of

advanced plan

DISCOVERY MEETING

Complete discovery process

Second Opinion Service

Complimentary Second Opinion Service

exclusively for friends, family and associates of our valued clients

Question & Answer

Economy & Finance

Paul Byron Hill, CFP walks investors through wealth preservation for income withdrawals