Where will you get income in retirement? Most people think: By cashing in the investments I’ve accumulated during my working life. But even if you have a lot of money saved, cashing in will not always work. You need to have an income plan. The notion that you can simply withdraw a fixed amount every month can carry a lot of risk.
Imagine a scenario where two brothers, three years apart in age, both retire when they are 62 years old. The year they retire, both brothers have exactly $1 million in assets. They each withdraw 5% or $50,000, adjusted for cost of living, each year, and live 30 years in retirement before dying. This story ends happily for the older brother who left behind a large estate, but not for the younger brother who ran out of money at 84. How can this happen?
In this case, the older brother had positive returns during the first couple of years in retirement, while the younger brother had losses. The older brother’s first two years’ gains were good enough to bolster him against the later downturns. The younger one had no such cushion. The sequence of returns makes a significant difference in the outcome of your retirement and you can watch a short video on this very important topic here.
When an investment is up, there’s no problem. You sell and reap the rewards. But if an investment is down when you sell, the loss is magnified. Between 1970 and 1999 the Standard & Poor’s 500 stock index’s average annual return was 13.66%. If you were retired during that three-decade span, it appears you could withdraw $136,000 each year without running out of money. That’s true if the market moved in a straight line, known as a linear return sequence but that is not realistic.. Unfortunately, when we factor in the market volatility that occurred then, an investor who withdrew $100,000 annually was left with just $119,111 after 15 years. Not much to live on. This is why income planning with a strategy to manage the downside is so important as you approach and enter retirement.
We understand the importance of providing income in all markets without jeopardizing your retirement plan. Let us show you in black and white a custom retirement income plan that is comprehensive, individualized and based on strategies that balance growth with downside protection. Get your Custom Retirement Paycheck Plan now!
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