Income-Harvesting Strategy: Achieving Inflation-Adjusted Income from a Lump-Sum Asset

Parker, Zachary S.
August 2008
Journal of Financial Planning;Aug2008, Vol. 21 Issue 8, p52
Academic Journal
• This study, a Judge's Grant winner in the 2007 Financial Frontiers Award competition, is designed to develop and test a new strategy for producing a highly successful inflation-adjusted income stream from a lump-sum asset. The income-harvesting strategy was developed to take the focus off linear interest rate assumptions on assets and place an emphasis on leveraging the volatility of the equity markets when modeling retirement income solutions. • This study uses market data from 1927 to 2004 to test the strategy. The strategy contains four distinct accounts for achieving an inflation-adjusted income stream from a lump-sum asset: an income account, two equity accounts, and a when-all-else-fails derivative protection account. • After initial findings, additional risk-based models were developed. These models provide a suitable approach for clients with risk tolerance levels from conservative to aggressive. • Conventional retirement income strategies were also tested to provide a reference point for the income-harvesting strategy. The income-harvesting strategy proved superior.


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