Retirement/Long-term Cash Flow Planning

The most significant threats to long-term financial security during retirement are portfolio volatility and inflation. For that reason, it is imperative that financial projections be based on stochastic models, an example of which is the Monte Carlo Method simulation. Our simulation tools are the same ones used by global investment consultants for pensions and endowments, with special modifications we have made for taxable investors. As such, we employ the most sophisticated and accurate methodologies available today to ensure the long-term financial security of our clients.

The Monte Carlo simulation technique incorporates the effects of potential market volatility and inflation on portfolio longevity. This methodology allows us to “stress-test” a portfolio’s ability to provide the desired income needs throughout the remainder of one's life. The objective is to minimize the risk that clients will outlive their financial resources.

Not only do we use this modeling technique to identify investment portfolio allocation polices, but it is also applied to virtually all required financial projections to measure the economics of any proposed strategy, including estate plans and risk-management solutions, before it is implemented.

Other elements of long-term cash flow planning may include business-succession plans, concentrated asset risk management, and employee stock option exercise programs.

Important Disclosure

Monte Carlo simulation is a technique used to calculate the uncertainty in the forecast of future returns. Instead of using a single value for each variable in the forecast (i.e., investment returns, inflation rate), when modeling future portfolio values or income streams, it uses many values, employing a random number generator to simulate the variablitiy of investment returns. A Monte Carlo "engine" runs the model over and over again, each time using a different value for each variable. Each run is called a "trial." The outcomes for each trial are tabulated, and after a large number of trials, the forecast is shown not as a single value or amount, but as a range of values. In other words, the uncertainly is explicit.

By using Monte Carlo simulation technology, it is possible to estimate the impact on a portfolio of a spectrum of possible investment performance experiences for a variety of asset classes. The computer program simulates what would happen to the portfolio value if it were invested under a number of different assumed investment scenarios. The software repeats the simulation 1,000 times ("trials"). The results of each simulation can be analyzed to indicate the probability that each proposed investment strategy will sustain a given amount of income or achieve a targeted portfolio value over specified time periods. No guarantees can be given about future performance and any projection by this method shall not be construed as offering such a guarantee.

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