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Bob Powell: The first thing I'd like to do is have each of the panelists introduce themselves, if you don't mind, because rather than me read your bio, you can do a much better job of it.

Anthony Davidow: Sure, Tony Davidow, I'm an asset allocation strategist for the Schwab Center for Financial Research. We're an independent think tank within Schwab trying to help our clients have better informed decisions. My focus is more asset allocation, so I know Jim and others have talked more about individual trading ideas. We're more longterm oriented as we look at the world.

Bob Powell: Bob.

Bob Dannhauser: Hi, I'm Bob Dannhauser. I'm head of Private Wealth Management with CFA Institute. For those who don't know, CFA is a leading educational association for professional investors, and we convey the charter financial analyst designation.

Robert Norton: Good morning, or good afternoon. I guess morning still. My name's Rob Norton. I'm the chief investment officer for Wealth Advisory Group. We're an RIA based in Philadelphia. We focus on advising high net worth families and plan sponsors for retirement plans.

Bob Powell: We're going to start. First, a show of hands. How many people are retired in the room? On retirement's doorstep? Great, and of the people who are investing in retirement right now, how many are mindful of the income that they're trying to produce from their investments, from either dividends or interest income? How many here are using the total return approach versus just living off the interest income and dividends? Okay, great. Thank you.

We're going to start there, because I think one of the things that is important when we think about income investing s the notion of you don't do this in the absence of a plan. The plan is, what's my monthly income target? Let's start there. Tell us how you would table set that in terms of placing income in the perspective of my total retirement income plan or saving for retirement.

Anthony Davidow: I do think it starts with a plan, but I do think maybe we need to revisit the plan. In the old days, you and I are veterans of this industry, but in the old days we used to have this magic formula and as you approached retirement, you automatically lived off the income that you were getting from your fixed income in your portfolios.

Bob Powell: Never touch the principle.

Anthony Davidow: Never touch the principle. Well, the reality is the world has changed. I know we'll get into it in greater detail, so I would argue, one, you need to have a plan. Two, you need to have realistic expectations because the difference today is you don't just retire and sit at home. You're going to Ireland, we all live much more productive lives. We need to think about the fact that we're likely going to be into retirement for 20 years.

Bob Powell: Live long.

Anthony Davidow: You would think that we're going to live longer, more productive lives than our parents' generation. I think as we think about that plan, we need to think about is it setting up for a long enough glide path. The other thing to think about is if all we rely upon are the historical numbers, the long term return of the S&P 500s, 10.3% 10.4%, what if those returns are 6-1/2, what if those returns are 7? What if we're not getting the 4% income from our fixed income portfolio? So I think we need to rethink, do we have the right numbers as a starting point and have we in fact built a plan that anticipates a long productive life in retirement, not just getting to retirement?

Bob Powell: Let me just interrupt there, Tony, for a second. So many people that write to me have said, "Well, in the low interest rate environment, I had to look for more risky assets in order to produce the income that I once received from a 4% bond or whatever." Do you want to address that now? Or Bob, do you want to tackle that?

Bob Dannhauser: Well, it's true, people are reaching for yield because there's just not a lot of great alternatives out there. I think what Tony says makes an awful lot of sense. You ought to revisit some of the truisms. There's all sorts of helpful rules of thumb that maybe at the end of the day aren't all that helpful. Withdrawal rates from your pool of capital, the amount of money that you're going to have to spend, 70%, 80% of preretirement income seems to be tossed around a lot. It turns out that we end up spending in retirement 100%, 110%, 120% of what we were spending preretirement 'cause we're having more fun, I hope, but healthcare costs are certainly going up and up, and that's driving a lot of our budgets.

One thing to perhaps think about is you really have not as much control over the investment side of the equation as you might like, but you do have ultimate control over the spending side. Your first shock absorber in thinking about your plan for retirement really ought to be around spending and what you can trim in lean years to keep yourself on track.

Robert Norton: I would just echo the thought of it's a cashflow game, money in, money out, and there are two levers to that. You may not be able to control as much as you'd like what you're getting from an income standpoint. You can control what you're spending, and to plan. We work with our clients and we do a detailed cashflow going out 20 years. We revisit that each year. It's done on an ongoing basis as opposed to a snapshot, and I think that's the most important thing is to monitor that cashflow on an ongoing basis, what's coming in and what's going out.

Bob Powell: We talked about, when we were preparing for this call, this notion of how you might allocate your assets in light of the income needs that you might have. In the old days, people were told it's just 100 minus your age, and that becomes your stock portfolio, but it's more sophisticated than that, is that right? How should people think about allocating in terms of could start there?

Anthony Davidow: Absolutely, and also to pick up on your previous comment about do we think of things in a total return or an income oriented? We actually have two portfolios. We have multiple portfolios, either total return oriented, which is what is the optimal accommodation of underlying asset classes to achieve an outcome over the long run and others that are more income oriented where we're just solving for the income component. I would just say for everyone in this room, you need to think about where you are in that spectrum. As you get closer to income, you're going to gravitate more to an income approach.

But I'll pick up something you said which I think is important, I think what we've seen over the last couple years is people tended to chase yield. Bob I think was talking about it as well. You chase yield. We looked at things like dividend paying stocks and reach and MLPs and things that generated a lot of income, but we need to be mindful of the fact that you're also taking out more corresponding risk.

Our view is you still want a diversified portfolio. The value of a plan is smoothing the ride over time. We want to make sure we're solving for the right thing over the long run, which is whatever our time horizon is and how we smooth that ride. But I think as everyone's chased where the yield has been, just be mindful of the fact we're taking on corresponding risk, and then marry that together with the very sobering discussion I think we had earlier, other than Ed who I think was a bit of comedian, I think it's a more sobering backdrop today than what we had. 2019, 2020, we could see some concerns on the horizon, so let's think about the risks that we're taking as we search for that yield.

Bob Dannhauser: Yeah, I think that's right. You need to be much more risk focused rather than just reducing it to a simple what's my split going to be between equities and bonds. Maybe it's easier to break the problem down into chunks. So the current approach that's finding a lot of favor in financial planning is to take things on a goals based approach. You have one set of objectives that are basically to try to keep you off cat food in retirement. You want to have your basic living needs attended for. You want to be pretty certain about achieving that objective, so perhaps a funding strategy around that and the investment strategy around that is going to be fairly risk averse, depending on how much capital you can start with.

Then there's the more fun goals and objectives that would be really nice to have, but aren't absolutely necessary where perhaps you can then take more risk. From that goals based framework I think some of the asset allocation becomes a little bit clearer, and you need not restrict yourself to thinking just in terms of equities and fixed income. I think you can take a little bit more expansive view of the opportunities that are available to you.

Robert Norton: I would just like to add that I think the diversification in portfolio is a good concept, but you want to diversify your sources of income. There's no reason why you can't have some guaranteed income and then some income that's a little higher but not as guaranteed, and then reach for some other sources that have a higher income. You're, again, not relying on any one thing. You have some base, some foundation that's going to keep the lights on, so to speak, but overtime having those diversified sources of income, you're not going to take an inordinate amount of risk to try to reach for that yield, but you're diversifying that income stream.

Bob Dannhauser: I think towards that end, annuities have a bad rap or have had a bad rap. They're really complex, they can be really expensive, but I think it's time for a fresh look at those kinds of products, because the nature of the products themselves have changed, but it's also an opportunity to take some of that risk off your plate and transfer it to an insurance company, so to lend some more dependability and assuredness to a stream of income. Maybe not for 100% of what you need to develop to fund your retirement, but perhaps for part of it. And particularly if you approach it with the objective of hedging some of the longevity risk, if you're lucky enough to live a really long time in high quality years, you can buy an annuity for fairly cheap that doesn't kick in until fairly late in your life, 85 or 90, to take you those last 10 or 15 years to the end at a fairly reasonable price these days.

Anthony Davidow: I'd love to pick up on the goals based comment, 'cause I look around the room and I see people from multiple generations. I like the goals based approach, but realize that everyone in the room is going to have slightly different goals.

Bob Powell: Tony, do you mind explaining the difference between goals based and investment based? Maybe that would be helpful.

Anthony Davidow: Again, I think for many, many years, institutions started with this notion of a 60/40 portfolio. You get a 60% allocation to your stock allocation. Your stock provided all your returns and your income came from your fixed income, so that 60/40 portfolio was mathematically serving well for your longterm retirement. As you get older, you typically would increase your fixed allocation to get income into your portfolio.

I think as Bob pointed out and certainly what we've seen across the industry is that a lot of people are gravitating to a goals based approach. And goals based approach could mean you're actually solving for multiple goals. One of those goals could be retirement, one of those goals could be sending your children to college, so it allows you to align with what are we trying to do with our money.

I'll take it a step further. One of the things that I write a lot about is if we understand what we're solving for in an overall portfolio perspective, then I can break down the components, and I think about why I have things in my portfolio. Jim made the comment earlier about gold, the reason I have gold in my portfolio is gold is a defensive asset. I shouldn't look at gold and expect them to out perform the S&P 500 over the long run. So I think at a macro level, and when I think of goals based, I think where do I get my growth in my portfolio? Primarily from my equity allocation, here and abroad, large, small, so on and so forth. Income is going to come from fixed income, but rather than just look at corporate and treasuries, might I look at international debt, preferred, so on and so forth.

For those of us in the room who remember the '80s, remember the term inflation? For the young folks, you've read about it in the history books, right? Inflation.

Bob Dannhauser: 1980s, right?

Anthony Davidow: In the '80s, yeah. Inflation can be terribly, horribly corrosive, but inflation is something we can solve for by incorporating certain commodities and tips and other things in our portfolios. Then, of course, if I think of what sort of defensive assets I want to have in my portfolio, that's the role of cash and gold and treasuries. But if I frame it that way, I have a much better expectation of what I'm solving for over the long run, and I'm not fixating on did my portfolio out perform the S&P 500 over the long run, which we all know is supercilious, but that's what we see all the time on TV. People are fixating on the Dow and the S&P, when in fact that may not be the appropriate benchmark to look at in the first place.

Bob Powell: So rightly or wrongly, as when I was young I focused on reward, and now that I'm older I rightly or wrongly focus on risk. The two risks that I think a lot about as I think about retirement and investing for and in retirement are the risks of longevity and inflation, and how to balance those, how to mitigate and manage those two risks given the asset classes you might have.

Bob, you mentioned annuities, and I known annuities get a bad rap, but it is the only product where you can take advantage of mortality credits. Bonds don't afford you that, stocks don't afford you that, and the risk of someone dying before you and taking advantage of them dying before you is something that doesn't exist anywhere else.

Bob Dannhauser: Right, but not without some other risks, right? It's the single main credit risk of the insurer which is an issue, and also the expense, so there's some opportunity costs there as well versus other alternatives that perhaps you could build yourself. I think the whole issue of timing is getting a fresh look, too, deservedly so, because the old strategy of during the accumulation of assets phase you're willing to take some risks and have risk assets, but when you start taking money out of that pot to live in retirement, all the risk comes off and you're depending largely on fixed income.

Well, if you come into a market environment that's down and you're starting to pull assets out, if you don't have some risk assets retained in your portfolio, you're just not going to have an opportunity to bounce back to the extent that you need to or might need to, to fund the longer tail of your retirement. You saw a lot of that happen in 2008 with some of the target date funds that took you to the point of retirement and then cut you off from any risk exposure. I think a more contemporary view now is to retain some equity exposure or other risk exposure in your portfolio so that you can grow back up if at the point you start pulling funds, it happens to be a rough patch in the market for a year or two.

Bob Powell: All right, so let's talk about some of the specific tools that people could use and pros and cons with those. Do you want to start with ATFs or MLPs or BDCs?

Anthony Davidow: I would just say ATFs I think sometimes get a bad rap in the market. ATFs are merely a structure. ATFs are a more sophisticated structure than a mutual fund, and I think sometimes they get blamed for all the disruption going on in the market. I happen to be a big fan, so you're probably picking up on that. I think what ATFs allow you to do is allow you to get exposure to slices of the market in a very efficient way, right? We own SPY, we own the S&P 500, we own 500 stocks, and it's a diversified basket. I can own emerging market in this same sort of fashion.

PART 1 OF 3 ENDS [00:14:04]

Anthony Davidow: It's a diversified basket. I can own emerging market in the same sort of fashion. So I'd argue ETFs are a valuable tools but they are just that, they're tools, ways of getting exposure.

Specific asses classed that I think are interested when we think about picking up income in our portfolios. I think of REITs, Real estate Investment Trusts which are both providing growth and income in your portfolios. MLP's, obviously became very popular, everyone chasing them, but realize MLP's area largely dependent on energy so you're obviously providing a lot of corresponding risk as you pile into those.

High yield I think has been very attractive but I'd argue now high yield is something I would be very mindful of just because I think so many people chase the yield without thinking the fact there is corresponding risk there. When that unwinds I do worry about how it unwinds.

There are a lot of income producing sort of strategies and the secondary question is once we decide we want to have exposure to them, how do I get exposure? Do I get it by owning individual securities, a mutual fund an ETF or a separately managed account?

I think sometimes ETFs kind of get the blanket. They're all what's wrong with the market these days.

Bob Powell: I'm not blaming them.

Robert Norton: I think one interesting ETF strategy that we've been using with our client is the sort of target date bond funds. In an environment where we've seen the 10 year go from 150 to over three in the last two years. Those type of things have been able to generate a positive return then also return cash to our clients so they can reinvest at the higher rate.

So it's a way to sort of work through a rising rate environment which can be somewhat corrosive to principal as bond yields go up. So it's something we've done, it's a tool, it's a specific thing that you can do to actually sort of protect yourself, get some return now and reinvest at higher rates down the road with your principal.

Bob Dannhauser: Just to tick through a couple that you listed. So I'm a fan of ETFs generally but of course know what you own. So they're cheap, they're diversified all good news, but there are also some potentially nasty surprised in some flavors in the marketplace. So, you need to do a bit of research before you commit to that.

Mentioned BDCs, business development companies, so they've had a little bit of a resurgence. With a bit of push from the federal government. So, 20 can't remember if it was '17 or '16 but two years ago or so the Small Business Credit Accessibility Act was passed and a little provision in that act said, well BDCs can now lever up to two for one rather than one for one.

You may be buying in to something that's quite a bit more levered than you might otherwise have expected. I have to say too that BDCs in general are a business model where the investment managers incentives and interest aren't as well aligned as some other instruments in the market place.

So, take that leverage issue for example, you lever up you get twice the exposure to the asset side, the manager is going to up their fee accordingly because it's based on asset exposure. But they're not really picking up part of the down side as well which of course the investor is exposed to.

So, again there's a little bit of a mismatch in incentives there.

Bob Powell: Just a show of hands, any BDC owners in the ... Couple, Mark.

Bob Dannhauser: Any BDC sponsors?

The other thing that's maybe worth a look these days is MUNIs. So still some of the same concerns over interest rate risk as the fed begins to move us back up the curve. But there's been again mostly from the courts some interesting things that perhaps make the fairly dire municipal finance situation just slightly less dire in the coming years.

So, some court decisions allowing for sports betting which of course is taxed and regulated. Legalization of cannabis products, we're going to be talking a lot about cannabis in the coming sections, but that creates some taxable opportunities for taxing jurisdictions.

There was a supreme court decision around the right of public employees to unionize or the necessity the mandatory unionization of public employees. That might give municipalities and states a little bit more flexibility in negotiating their way out of some pension dilemmas that they have now. Not offering any value judgements about the equity for that or the fairness of that to public employees but just strictly from a fiscal standpoint. That could create a little glimmer of good news. It might tend to boost the MUNI market a little bit.

Robert Norton: Yeah I think there are some interesting supply and demand issues happening in the MUNI market and I think it's also a market that has incredible diversity to it and a lot of very small issues and things like that that really require a fair amount of research and staying on top of. So you can find opportunities there and we think that's actually an interesting place for active management as opposed to just sort of buying and ETF and buying everything or just buying the big stuff.

So, there are definitely opportunities there we've seen some very good results in the high yield MUNI area. Again a lot of undiscovered sort of small issuers, full good credits, hospitals, this, that, and the other thing. But just are off the radar screen and you can get some really good opportunities there in terms of good yield and they've performed well over the last number of years.

Bob Dannhauser: It's still a relatively inefficient part of the marketplace ...

Robert Norton: Correct.

Bob Dannhauser: In terms of information. So that's good news for people who are willing to put in the work or hire somebody who is willing to do that for them.

Anthony Davidow: Agreed. Can I just suggest something which I think Bob touched on earlier and that is that you're hearing a lot of these new ideas. I wouldn't invest in anything unless I understood it. Right? I mean, spend the time to understand it, if something sounds like it's too good to be true it probably is.

Robert Norton: Probably is.

Anthony Davidow: I got back to, I'm aging myself here, I go back to Watergate and you think of Deep Throat. What did Deep Throat say, "Follow the money." Follow the money, understand how these products work and who gets compensated and ultimately if you understand how the money works you often find out how these products really work.

So, I pick up on Bob's point earlier, know what you own. All these things sound great until they don't work. So, if you can't get comfortable in the way that it works, you can avoid it.

Bob Powell: Right.

Robert Norton: I think a corollary to that is to make sure that the structure matches the ...

Anthony Davidow: Yeah.

Robert Norton: Matches the opportunity. So, you don't want to be something that is very liquid in terms of being able to be bought and sold at the retail side where the underlying issues is very sort of il-liquid.

So, that kind of mismatch generally ends in tears. So, it's a something you want to be very conscious of.

Bob Powell: So we witness some of what you're talking about with non-traded REAT's. Is that fair to say that folks didn't, maybe not know what they bought?

Anthony Davidow: They didn't, right. And a lot of people got burned from that and again it's the structure. So, I think Rob's exactly right. If you can separate strategy versus structure first decide to I want to have exposure to this type of a strategy and then determine what is the best structure to own it in.

Bob made the point earlier about ETFs and again I think sometimes we pile into ETFs and I would say that and ETF is just a wrapper. It's a more sophisticated wrapper but you need to understand what's going on under the hood. And think of high yield ETFs, when everyone chased the yield in high yield ETFs that's great on the way up. What happens if everyone heads to the exit at the same point in time.

I think there's some potential concern there. So, again spend the time, know what you own and know how you own it and I think we'll all be happier in the long run.

Bob Powell: So one product we didn't touch on is closed end funds in terms of the income opportunities there, and there are many. Of course, they can be complicated, leverage etc. Discount premiums, whatnot, anyone want to take a stab at pros and cons of closed ends?

Robert Norton: I spent some time at [Nivene] so I'm some what familiar with the closed end area. I was on the opened end but it's a ... I think there's an awful lot of opportunity there. Again it's the same kind of thing where you really have to understand things like leverage, what do they own, and what's going on.

I think you can be a long term investor there and you've ... As long as you're doing the right thing and the fundamentals are sort of fine. You don't want to get to upset about the price movements because you'll have times where a closed end fund will sell off. Maybe it creates more of an opportunity but understanding what the NAV is, what the discount is, or what the premium is. Those are the things that you really want to do and you can generate good income from those types of products.

Again like anything you have to know exactly what you're buying and what price you want to buy that at.

Bob Powell: So I'd like to open it up to the questions if, I saw your hand first sir. Wait, wait, do you mind waiting until the microphone gets to you, Erik? Someone?

Robert Norton: Here we go.

Bob Powell: Thanks. And Lizzy I know we have a question about preferred's coming too right?

Right over here.

Audience: Yeah, I just had a question about investment grade corporate bonds. Not a bad space to look at but probably close to 50% of them are triple B. Maybe a wild space pending any downgrades or problems with them. So I'd kind of like to get your impression on investment grade corporate bonds.

Bob Dannhauser: Spreads are about as tight as they've been. You know, it's difficult to imagine they've got anywhere to go but suffering some principal losses as rates begin to tick up whether there's compensation for that, given the higher coupons.

I think it's tough to call. I would say slightly negative bias on that.

Robert Norton: It's something that ...

Anthony Davidow: I would say we favor high quality versus again are you being compensated for taking on a risk. Is this the environment for it? Probably not. So we'd probably prefer shorter duration higher quality bonds.

Robert Norton: You really have to be conscious of the credit cycle there. My sense is we're later in that than earlier in that. So you should be wary.

Bob Powell: Ma'am.

Audience: I have a question. What do you think of triple tax free New York municipal bonds now with the rates are going up a little bit, like 3.75 for a 20 year? Like near Ithaca that kind of bond near upstate New York?

Robert Norton: There's a couple ... It's supply and demand again right? You have to be conscious of, is the underlying municipality, is it gonna pay? At the end of the day ...

Audience: High quality.

Robert Norton: Yeah, well, high quality is it a GO or a revenue, right? So, there's a difference. GO is your sort of, you're expecting the political thing to work correctly right? Whereas if you're it's a specific revenue ...

Audience: Taxable [inaudible]

Robert Norton: Then that's fine. So you've got to make sure that piece is right. There is a bit of a supply I think, issue in terms of not that much because with the way the tax rates are going it's going to be a more attractive type of investment. So, there may be a supply and demand in balance there that's working your way. What?

Audience: [inaudible]

Robert Norton: It's in your favor, right. Yeah, or I think that ... I wouldn't wait too long. I think that over time you're gonna see the increase, there's gonna be increased demand for those as people start getting their tax bills, especially if you're in New York. It's gonna be, it's not gonna be pretty.

Audience: Yeah.

Robert Norton: I think that that's ... There's some wind at your back there a little bit.

Audience: Yeah.

Robert Norton: But again it's always about the underlying credit is the place to start.

Audience: Yeah.

Bob Powell: So, I have a question over here.

Audience: What do you think about putting call writing strategies as an income source?

Anthony Davidow: I think again if you have the expertise and it makes sense for you I think a lot of people are looking at that as ways of getting more income in your portfolios and it makes sense if you understand the nature of the option and then the nature of the underlying. Absolutely.

Bob Dannhauser: There's no shortage of stories of people who've been blown up, but typically people who were told ...

Anthony Davidow: I'm trying to be positive here.

Bob Dannhauser: I know, I know.

Bob Powell: Throw a little water on your fire there.

Bob Dannhauser: Just sounded too good. But it really gets to the point that there's no free lunch. So people who thought that they had gleaned some secret mechanization of the market that they could capitalize on were sadly disappointed. I dare say the people who come to an event like this are not among that group. But friends of yours perhaps

Robert Norton: I think call writing is something that if you have a specific mind of a price target that you want to be out of a stock at, and why not take a little bit of income to get called out at that price anyways. So like every situation it's what are you looking to do and then are there specific things I can do to sort of maximize my income.

So, there are things that maybe aren't as ... Getting people blown up, but are ways that you can generate a little bit of income.

Bob Powell: The voice of reason.

Anthony Davidow: I think the one thing is, you know, have a disciplined approach. Know the underlying strategy. Know how it works right? Options ...

PART 2 OF 3 ENDS [00:28:04]

Anthony Davidow: ... know the underlying strategy, know how it works, right? Options amplify the up and the down, but have a disciplined approach, and stick to it, and again, I think there is a lot of different ways to making money. Everyone here, you're here because you've obviously been doing it a while. Find out what you're good at and avoid things that you're not good at.

Bob Powell: So just a show of hands, how many call writers are there in the audience?

Anthony Davidow: Quite a few.

Speaker 1: [inaudible]

Bob Powell: Excel, yeah, okay. Yes, over there.

Speaker 2: Yes, with Amazon's increasing domination of the market, is there a company that would be impacted directly that maybe we could short? Just curious.

Anthony Davidow: I'm sorry, I didn't hear that.

Bob Powell: I think we'd hear it. Did you hear it?

Anthony Davidow: It was funny, but I'm not sure we heard it on stage.

Bob Dannhauser: Amazon, being so dominant, is there a particular company you could short to take advantage of that? Sort of the other side of the Amazon trade?

Anthony Davidow: I've no point of view on that.

Bob Powell: Next question?

Robert Norton: Ask Jim that question. He'll have some ideas, we're on the income side.

Bob Powell: So what have we got? There's one in the middle, and then we'll go to the far side. Alright, you can go first sir, you have the microphone, on the far side.

Speaker 3: Hi, from a retirement planning perspective, I wonder if the panelists could offer their thoughts on long term expected returns from different asset classes, say US stocks, developed stocks, international stocks, emerging market stocks, and bonds. 10 to 15 year type return expectations.

Anthony Davidow: So we calculate capital market expectations, or expected returns, looking forward 10 years, and I would tell you all of those asset classes are less than their historical average. So, again, not to be super precise with this, but the SNP500 over the long run is, what? 10.3, 10.4%. Our expectations are US markets are somewhere around 6.5. International markets and emerging markets slightly higher, but definitely below the historical average. Sot hats the backdrop over the next 10 years.

Now, I would tell you, we revisit those capital market expectations every year, so there's always a chance that we could revise them upward, but I think our view is they'll likely be well below where they have been for the foreseeable future.

Robert Norton: Yeah, I would say if you were to take a 60/40 portfolio, 5.8. Where do I get that from? I'm getting 7% on the equity side, and I'm, let's say, using 4 on my income side. So, that's gone, as he says, under long term averages. I think the one thing that has changed, actually, over the last two years is that number may have gone up, because I don't think anything's happened on the equity side, but the interest rates have moved up, right? So, as long as ... You have to be aware of what that number is, but understand where the dynamics of changing are on that.

With fixed income, your number tends to be very close to your initial ... With traditional bonds, your number tends to be very close to the yield you invest at, if you hold, right? I mean, it's kinda math, right? It's a 91% correlation. So, be conscious of that yield that you're investing in, and as rates go up, you could actually see that expected returns go up, but you have to have capital, and you have to make sure that your bond portfolio is not degraded by the rising interest rate. So, I kinda concur with your number. We're in the same ballpark.

Bob Powell: How's your crucible?

Bob Dannhauser: I have no point of view on the number. No surprise to you, Jim, I'm sure, given your familiarity with CFA, so I'll defer to the commercial guys on the panel.

Anthony Davidow: I would just point out, related to that number, so if the long term, or 10 year projection, on the SNP or the US markets is 6.5, it's not going to be 6.5, right? It's going to be either substantially high or substantially lower. We're certainly in a phase where I think you're gonna see more variability of return, the same with all of the asset classes, so as much as you've got that long term horizon, it only works if you're actually holding onto it, and I think Rob kinda pointed out something with yields today, fixed income yields are low, but if you hold it to maturity, that's essentially what you end up getting. So, again, you've gotta have the patience to actually stick with it, our view is given the current economic backdrop, long term returns for equity markets, US, international and emerging are likely going to be lower, but it doesn't mean that you won't have surprises and good years along the way.

Bob Powell: We had a question in the middle I thought? Yes, there we are.

Speaker 4: I'm at that age where I like to turn the thing back to your retirement talk. I work out a lot of guys in their 80s, I've got a little law practice, I used to be big law in New York, but a little law practice up in Connecticut, and this movement to retire in place creates some things I'd like to see what you folks think. Most people retire in place in a house, and they don't remember that there are roofs on houses, and there are air conditioning systems, and there are furnaces, and there are windows, and we think that they last forever, but they have to be replaced. I just replace things on a small house and it costs $20 grand.

So I'm wondering how, when you do your planning, what do you bring into account for the kind of expenses that if you write today what my expenses are, believe me, you won't have this in it. So thank you.

Bob Powell: So I'm gonna start, and then you guys jump in. So the BLS numbers show that for retirees, a third of their expenditures go toward housing. Right? A third. So, that's all inclusive, right? Property taxes, insurance, maybe mortgage, maybe not, repairs, et cetera, et cetera. So if you're going to retire, and you're going to be on a fixed income, or something similar to a fixed income, you've gotta plan on that number being the largest expenditure of your retirement.

Speaker 4: In that depends, with all due respect, on how long you live.

Bob Powell: Correct. Right. But on average, and no one here is average, but that's for another day.

Bob Dannhauser: Actually, sort of interesting, is that life expectancy in the US is taking a turn for the shorter for the first time. So in the last couple of years, life expectancy at birth in the US is actually decreasing. Actually, I had an epiphany in the last hour, Jim is deciding whether to sit with Jule or David Blaine, and I'm looking at death tables from the CDC. Being an example of poor life choices, but I think it speaks to, first of all, the interest in health and wellness as a theme, an investment theme going forward, but also the potential for health care expenses that continue to outrace the growth in other expenses. Notwithstanding, significant housing expenses that accrue to the elderly as well.

Robert Norton: So I was interested in your story, you're retired, sort of, right? You're not really retired, I think that's a trend that is happening, is that people aren't just totally retiring, they're still doing something. You've got a hand in somewhere, in some way, and the way the gig economy is going, that's something that will probably be more accessible than not. So that goes into the cashflow, right? It's cashflow in, cashflow out, so you're not just relying on your investments, you're banking a little money on the side, and then you have to think about on the other side, "What are my expenses? I have baseline expenses. I kinda know, but then I have some unknown, or potential things." You've gotta put pencil to paper on that and revisit that, right?

All of a sudden the windows start going, I gotta put some money in next years plan for that. So I think it does come down to just cashflow, and revisit that on an ongoing basis.

Anthony Davidow: And I would just amplify that, I think its so important to really spend the time to think through your retirement. You're a perfect example, you mentioned you're working out, you're doing things. People live longer and more productive lives, which means they're not just retiring and waiting to die, they're actually living their lives, they're spending money, and you actually need to do a comprehensive financial plan that actually takes into consideration what your lifestyle will be in retirement. Do you wanna travel, do you wanna do things? You're gonna have to put money into your house, you might wanna be taking care of your children. There's all of these things, so again those short term cookie cutter solutions that we grew up with really don't serve you very well.

The more that you spend thinking through what are the real expenses, what are the real thing that I need to think about, and the biggest one being that longevity risk, I think you're gonna have a much more realistic approach to that, and those cookie cutter approaches didn't really serve us well because I think many of us, we got to that point and we realize, "Well, I expect to live another 20, 30, 40 years, and I wanna go to Ireland, and I wanna fix my roof." And all of that.

Bob Powell: Yeah, there's another thing I think I'd mention on this when, back in the 70s or 80s, we didn't have the number of tools that we have today. So we didn't ... Reverse mortgage wasn't around until maybe 10 years ago, right? But now people are researching reverse mortgages as something to do to manage sequence of return risk. No one would have ever have thought of it, to do that, but that's what people were thinking about it in those terms, right? We didn't have an HSA, we didn't have a deferred income annuity, right? So now you have all these tools that allow you, I think, to create tax efficient income in retirement, and so things like asset location start to matter in ways that they didn't matter perhaps many years ago. We didn't have a Roth IRA, but now we do.

And so now we have the opportunity to not only save in a tax efficient manner, but also withdraw in a tax efficient manner, and those things are complicated.

Bob Dannhauser: Yeah, reverse mortgages, it's worth a look. It's sort of reverse mortgage 2.0 in that the industry started on kind of a souring out with some questionable products, they're back with a little bit more robust and investor friendly products, not really income, but perhaps just transforming the liquidity profile of what might otherwise be a money pit of expenses and a very I'll-liquid investment in a house to something that's a little bit more liquid.

Bob Powell: Right, and it also comes in handy along with a cash value life insurance if ... Who here is exposed to Medicare Part B: Income Related adjustments? Anyone? No one.

Speaker 1: My husband.

Bob Powell: Okay, well it's just a premium increase based on your modified adjusted gross income, and the ability to use income that doesn't put you over the threshold is a valuable tool. We'll save that one for another time. Go ahead, Lindsay.

Lindsay: Okay, I've got a couple of questions. If you're comfortable, I'm curious about the munis you would suggest to us.

Robert Norton: So, you can ... There's different ways to do it, right? You can go buy your own, that has got pluses and minuses. You've gotta actually do the credit work, and do all that kind of stuff. I think that there are very good, low cost, mutual funds that can do this, and I think when we try to do it, we look at strategizing with having some short, intermediate term, some traditional [inaudible], and some high yield, so we're sort of blending up a better return, and we're getting a diversified stream of munis, but I'm looking to people to do a good job on the credit side, and are able to find those muni bonds that are good quality, undiscovered, and provide good value.

Lindsay: Are you comfortable giving us any names to explore?

Robert Norton: Individual bonds?

Lindsay: Munis, munis.

Robert Norton: Individual muni bonds? Again, I don't know, it's where you love, or ... Because I'm Pennsylvania so I've got a little more understanding there, but I think there are a number of very good high yield muni funds that we'd recommend. Nuveen has a very good find, Mainstay has a very good high yield fund, there's a number of very good tradition muni bond funds, and then people like Vanguard and stuff like that have great, intermediate, short term, muni bond funds that they'll cover that space.

Again, important to understand what you're paying in fees, because every basis point in fees is a basis point you don't get in your income, so that's something to think about.

Bob Powell: So we're bumping up against the end of our time together, I want you to join me in thanking Tony, Bob, and Rob.

It's not your father and mother's retirement!

These days when you retire you don't just sit at home.  Nope, instead you might be traveling to a far away destination like Ireland. We all live longer and our lives are so much more productive. So, that means we need to think differently about how we plan for the next twenty or thirty years of retirement.

Retirement Daily's Robert Powell and his panel of experts tackled this very topic.  Highlights included:

  • Income Investing. Anthony Davidow of Scwaab Center for Financial Research says, " I think it starts with a plan, but I do think maybe we need to revisit the plan. In the old days, you and I are veterans of this industry, but in the old days we used to have this magic formula and as you approached retirement, you automatically lived off the income that you were getting from your fixed income in your portfolios.
  • Cash Flow Control. Robert Norton of Wealth Advisory Group says, "It's a cashflow game, money in, money out, and there are two levers to that. You may not be able to control as much as you'd like what you're getting from an income standpoint. You can control what you're spending, and to plan. We work with our clients and we do a detailed cashflow going out 20 years. We revisit that each year. It's done on an ongoing basis as opposed to a snapshot, and I think that's the most important thing is to monitor that cashflow on an ongoing basis, what's coming in and what's going out."
  • The Value of ETF's. Robert Dannhauser from CFA Institute gives some advice. "I'm a fan of ETFs generally but of course know what you own. So they're cheap, they're diversified all good news, but there are also some potentially nasty surprised in some flavors in the marketplace. So, you need to do a bit of research before you commit to that."

Watch the full interview above. And learn more about Jim Cramer's Boot Camp: How to Invest Like a Pro by clicking here for TheStreet's special section here.