When It Comes To Retirement – Keep Your Eye On the Ball

When I initially meet with new clients, one of the first things we go over is what their end game is when they think of retiring. I usually get the ‘Captain Obvious’ stare for a second or two. Of course, income is what allows them to even contemplate retiring, but after the last few years, most have come to covet stability of income, along with the safety of their investment capital. It’s one thing to arrive at retirement with a boatload of equity, it’s quite another to fall asleep each night knowing it’s foundation is secure, as in deeply sunk, steel reenforced, heavy duty concrete secure.

What many of the studies put out by Dalbar Inc have shown is that the typical investor, whether lookin’ for long term capital growth or fixed income, just hasn’t faired well at all — if they’ve given their money to Wall Street. I don’t mean lately. I mean the last 20 years — pretty much a generation. Want numbers do ya?

Here are the two startling numbers that matter to almost all of us. Dalbar Inc is considered the gold standard when it comes to this area of research and analysis.

1. Equity investors for the 20 year period ending December 31, 2009, averaged 3.17% annually in the stock markets.

2. When investing on Wall Street for fixed income, to avoid the risk of holding equities and getting hurt by cyclical downturns, the average annual return was just 1.02%. Again, that’s for the 20 year period ending December 31, 2009.

Let that sink in. Almost every financial advisor I’ve ever talked with has told me they suggest projecting returns of roughly 4% a year on invested capital when considering your retirement income needs. Man, can you save that much?

If it costs you $40,000 a year to live a comfortable but frugal life of leisure now, what might it be 10-20 years from now?

In 1965 a 30 year old married man with a couple kids might’ve been makin’ about $6,000 a year or so, before taxes. If you’d asked him to pick between a guaranteed retirement income of $35,000 a year, or investing in the small duplex around the corner to get started on building his own retirement, the smart money says he would’ve opted for the $35,000, right?

Fast forward 35 years to 2000. How’s he doin’ in retirement with a whole $35,000 a year before taxes?

See what I mean? When people are asked about retirement income, they usually don’t stop to look at what’s gone before them. They forget how their Uncle Ned screwed the pooch by opting for what seemed like a lotta money over three decades earlier. Frankly, one might reasonably wonder if he’d be better off back in 1965 with $6,000 than with almost six times that much today.

Even if you had your money in a fixed income investment of some sort, what would 4% bring you? $60,000 requires $1.5 Million — and the income would be completely subject to both state and federal taxes.

Think long a hard about what path you choose to take, cuz you will, without a doubt, live with the consequences of that choice.

Gimme a call at 619 889-7100 and let’s explore how you’ll be able to do much better than Uncle Ned did. Have a good one.

Related posts:

1. The American Middle Class — Keepin’ They’re Eye On What Ball?
2. Road To Recovery — Part II — Establishing Tax Free Retirement Income
3. When Selling/Exchanging Investment Property Keep Your Eye On The RIGHT Ball
4. Independence and Your Retirement — Redundant Or Oxymoronic?
5. What Planning For Retirement Is All About — Income