LDI for Individual Retirement Planning: A Good Fit Corporate DB Pension Practices Applied to 401(k) and IRAs
The Open Architecture 2020 Group operates as a volunteer think tank which seeks to contribute to the conversation about retirement planning, and has no sponsors, fees or revenues of any kind.
The information and ideas presented here are not for sale and are not intended to be a solicitation for insurance or investment advisory services by the authors to the public. This is food for thought only, not advice.
Dedication: For Ziggy
Feedback from Readers
"I think your argument for mapping income/income-earning vehicles with different 'buckets' of expenses makes complete sense..." (from a recent retiree)
“It was easy to follow and learn the scope..." (from a current 401(K) participant)
"An EXCELLENT technical discussion about fiduciary considerations for the role of annuities in qualified plans and retirement planning in general..." (froma thought leader on prudent insurance and annuity best practices)
"I especially like the case study examples. Makes it more real, helps with translating risk aversion to a plan of action. The examples you have of the impact of inflation are great. Really makes the point. I think what you have is excellent..." (froman institutional pension investment expert)
“I literally tear up, then get angry and need to walk away from my screen every time I read the Connie and Ziggy example. I really like this piece...” (froman industry consultant specializing in fiduciary standards for retirement plans)
Open architecture retirement income planning includes all prudent tools in an objective way. Stocks, bonds, real estate, annuities… all solutions are considered without bias or prejudice.
Today, Liability Driven Investing (LDI) is an open architecture de-risking process employed by large corporate pension plans to improve retirement security for their employees.
For individuals, professional-grade LDI has yet to evolve into a simple consumer planning option that meets institutional best practice standards for objectivity.
New ideas for managing risk and return are needed.
This pro bono project hopes to contribute to 401(k) plan employee education, improve understanding of new rules for income illustrations on statements, and help plan trustees consider the benefits of adding annuities.