JANUARY 28, 2020The day I left Wall Street big banks to safeguard people’s retirement was the day my life – as well as the lives of many of my clients – changed. That’s because rather than leading clients down a path that could potentially destroy all that they’d built financially, I helped them to keep their principal safe, while at the same time providing them with a reliable, ongoing retirement income stream that they could count on, regardless of how long they needed it. Most Wall Street firms sing the praises of risky equities and downplay safe or “protective” financial vehicles. But not having at least some amount of certainty in the future can lead to a retirement that is filled with worry about whether or not your money will last. Is that really the kind of retirement lifestyle you want to live?
Why You Should Be Cautious When Relying on Average ReturnsIf you’ve purchased any type of investment, it is likely that your financial advisor told you all about its average return in the past. But past performance is never an indication of future investment returns. On top of that, even if an investment generates a nice average return, the order in which its returns are received can make a tremendous difference in how long your portfolio – and in turn, the income that is generated from it – will last. As an example, throughout your working life, you may have been told by financial advisors that fluctuations in your investments don’t really matter because “the market always eventually comes back up.” That’s bad advice – You see once you retire the way you manage money changes forever. If you receive a negative return early in your retirement at the same time you are taking income out it can cause your portfolio to run dry, even if it has the same overall average return as another. For instance, consider two investors who each have $100,000 in their portfolio and each is taking 9% per year out of their savings to use for paying their living expenses in retirement. But, even though both of these retirees receive the same average return of 7%, they have drastically different results in terms of when they run out of money. In fact, because Investor #1 earned a negative 13% return in Year 2, rather than in Year 3, their portfolio was depleted six years earlier than Investor #2’s portfolio.
|Year 1||Year 2||Year 3||Ave. Return||Years Until Depleted|