Must do steps to acheive Retirement Income in a "New Era"

Many of us remember what the 1980’s and the 1990’s were like. 
We witnessed the largest bull market run in the history. 
Things were easy than. 
You could almost throw a dart and expect your money to grow. 


We forget lessons learned from the past and almost start taking things for granted when we experience extended periods of good fortune. 
Many became comfortable and complaisant during the 80’s and 90’s… Unfortunately.


Prudent advice is to "buy" during a bear market. Everything is "on sale" and the expectation is that the market “always comes back.” 
 If you are an investor, your returns over the past 10 years have been dismal. 
Dow Jones had an annualized rate of return at -4.68% during the past 10 years.
History of the market shows that bear markets run can and do span over 17 years.

We don't have a crystal ball are not able to predict if we have 7 more years of bear markets ahead of us. 
The question is: Do we have the time or resources to wait it out?  

Bill Gross (the co-founder of Pimco who manages over $1 Trillion dollars) feels that  investors should be prepared for what has been coined as the “new normal". A prolonged period of slow growth, narrower profit margins and lower investment returns compared with previous decades. 
With that in mind, we should be looking at the importance of safety and income-driven investing. 

Due to the level the level of uncertainty with the market and the economy, traditional income investment methods cannot always relied upon. 
Guaranteed income vehicles should be top of mind for the thousands of baby boomers reaching retirement daily . 
Consider the difference between investing for cash flow VS. investing for a rate of return. 

Using the highly touted 4% annual withdrawal rule, $20,000 income a year to sustain retirement lifestyle requires a savings account of $500,000. 
Before putting our money in vehicles primarily focused on generating the highest rate of return, we need to consider how economic volatility may effect our nest egg during retirement years.

A 65 year old male is expected to live almost to 81 years old, while a 65 year old female is expected to live to 85. 
This presents a potential income requirement of 20-25 years, yet the “new normal” tell us that we should not count on returns, dividends and yields of the old days. 
As a matter of  fact, if the economy dips again and we lose 30% of our $500,000 savings, a $20,000 annual withdrawal will represent 5.7% of our savings. 


So are we spending $20,000? 
Or, are we spending 4% of our savings? 
If we rely on $20,000 per year to live. 
Percentages and dollar amounts are two entirely different things. 


As long as we do not withdraw more than 4% of our portfolio, the rule of thumb dictates that our assets should last through our retirement (key word should). But, if our nest egg is reduced by 30% and we need to use 5.7% of our savings annually, odds increase that we may run out of money before run out of life. 
This is especially true if we should encounter an additional 7or10 years of the secular bear market we are currently in. 


The good news is that with a slew of new guaranteed income products available today, retirees and pre-retirees can focus on cash flow rather than market returns. 
By placing a portion of the $500,000 in a program like this, a 65 year old person can generate 5.5% cash flow of that amount for life, no matter how long he or she lives. 
$365,000 of the $500,000 can contractually guarantee cash flow of $20,000 per year for life. What's more important is, this is done using 100% protected accounts, guaranteeing that the $20,000 a year will never be reduced or affected by the economy or what the government decides to do.

The remaining savings can be ear marked for long-term growth or riskier investments. 
Taking some risk with the remaining dollars is much easier to stomach as long as we enjoy steady and reliable $20,000 annual income under any economic situations. 


Most people have the wrong focus when investing retirement dollars. Many Chase market returns that often leads to unreliable income stream, an upset stomach, and at times a possibility of having to return to work. 


In order to enjoy the retirement lifestyle we envisioned, proper planning is a pivotal step we must take. We must make certain not to make an irreparable mistake that may take the glitter out of our golden years.   



For further educational information or to attend one of our workshops, please call us at 800-993-9996 or visit us at www.northwest-retirement.com.
Always consult a qualified financial professional before acting on any information included in this blog. 

Information in this post is not meant as an offer to buy or sell any products and is meant for educational purposes only.