How do you replace your work paycheck? How can you make sure that your monthly income keeps up with inflation over the next 20-35 years or more? Many people want principal protection and income predictability. And nobody wants to OUTLIVE their money.
Pensions, Social Security and certain guaranteed lifetime income annuities can provide the CORE income base. So income from your “market risk” investments must make up the rest. Investment returns can play a large part of how long your funds will last while taking monthly distributions. But so is the amount of risk that one takes in order to get a “hoped-for” return.
However, it is the “sequence of those investment returns” while you are withdrawing money from your savings that matters much more than your “average” rate of return. Sequence of returns risk (the order of returns achieved) is very real and is fully described in my retirement income book — look for the story of Bill and Jill on pages 51-54. But in a nutshell, someone experiencing big negative returns early in retirement will be much worse off than those same negative returns later in retirement — DESPITE having the same average annual return.
If you are retiring soon, let me ask you two quick questions. With the market at near all-time highs, are we closer to negative returns or more big positive returns? Are we likely more like Bill or Jill at this point in the market cycle?
Having a conservative and predictable lifetime income plan is critical to retirement success. One that combines Social Security, pensions and other lifetime guaranteed income as well as a market-based portfolio that reduces sequence returns risk to as low as possible while still getting a reasonable average annual return? Do you have an comprehensive yet flexible lifetime income plan?
If you haven’t read my book yet, you can get your copy from Amazon:
all the best… Mark