Bill Sharpe Seeks a Better Retirement Income Solution

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Bill Sharpe Seeks a Better Retirement Income Solution

Post by vnatale » Fri Sep 18, 2020 12:41 pm

Another excellent profile article. This one on Bill Sharpe.


Bill Sharpe Seeks a Better Retirement Income Solution

Sharpe, 84, is still finding simple truths that can rock even a veteran’s understanding of retirement planning. ... -solution/

At 84, Sharpe still comes up with simple truths that can rock even a veteran’s understanding of retirement planning. Consider the popular period-certain option with an income annuity.
(Related: Finke: Why Annuities (and Free Steak Dinners) Deserve a Second Chance)

According to Sharpe, choosing a 20-year period-certain option is just like having a bond ladder with a deferred annuity tacked on the end. If building a bond ladder for 20 years is cheaper net of fees, just create a bond ladder and buy a deferred annuity. Why didn’t I think of that?

As we sit in front of Sharpe’s computer, he shows me a new program he’s been working on to simulate variable-annuity income streams. Using a random return generator and programming based on the annuity contract features, he simulates what happens to income when market returns rise and fall during retirement. The computer program spits out a series of squiggly lines that represent possible income paths.

The lines are all over the place. Some spike early in retirement and result in a high income that decreases gradually over time with inflation. Some fall flat early in retirement, presumably leaving the simulated retirees with a disappointing lifestyle with fewer vacations and fancy dinners. Each line is a hand that the retiree is dealt when they accept investment risk within the rules of a financial product.

The squiggly lines are Sharpe’s way of visualizing the trade-offs that all retirees face when turning their nest egg into a lifestyle in retirement. All of us want a high and stable income in retirement. But we can’t have both.

We can either have an income that’s low and stable, or an income that’s risky, unstable and possibly higher. Sharpe wants us to understand how to choose the right income path, and which mix of investments and products provides the most optimal results for the amount of risk taken.

Balancing Income and Risk

To Sharpe, the role of a financial advisor is to understand the range of options all clients face in order to build an income that efficiently balances risk and return. The advisor needs to understand these tradeoffs, and he or she needs to be able to explain them to a client. He’s even written a book that’s available on his Stanford website to help advisors “focus more on communicating possible outcomes and helping the clients understand the options.” (To read “Retirement Income Analysis with Scenario Matrices,” go to
"I only regret that I have but one lap to give to my cats."
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